INDEX

INSOLVENCY AND BANKRUPTCY LAW - Companion

INDEX

SR NO. CHAPTER NAME PAGE NO. LECTURE 1ST READING 2ND READING 3RD READING

INTRODUCTION TO INSOLVENCY AND

1
BANKRUPTCY CODE
CORPORATE INSOLVENCY RESOLUTION
2
PROCESS
PROFESSIONAL AND ETHICAL PRACTICES
3
FOR INSOLVENCY PRACTITIONERS

4 RESOLUTION STRATEGIES

5 LIQUIDATION OF CORPORATE PERSON

6 VOLUNTARY LIQUIDATION OF COMPANIES Covered in IBC Core

PRE-PACKAGED INSOLVENCY RESOLUTION

7
PROCESS

8 DEBT RECOVERY & SECURITIZATION

9 WINDING-UP BY TRIBUNAL

10 CROSS BORDER INSOLVENCY

STRIKE OFF AND RESTORATION OF NAME

11
OF THE COMPANY AND LLP
FAST TRACK CORPORATE INSOLVENCY
12 12.1 – 12.16
RESOLUTION PROCESS
ADJUDICATION AND APPEALS FOR
13 13.1 -13.13
CORPORATE PERSONS
INSOLVENCY RESOLUTION OF INDIVIDUAL
14 14.1 – 14.10
AND PARTNERSHIP FIRMS
BANKRUPTCY ORDER FOR INDIVIDUALS
15 15.1 – 15.9
AND PARTNERSHIP FIRMS
BANKRUPTCY FOR INDIVIDUALS AND
16 16.1 – 16.13
PARTNERSHIP FIRMS

17 FRESH START PROCESS 17.1 – 17.7

18 GROUP INSOLVENCY 18.1 – 18.14

INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

 INSOLVENCY AND BANKRUPTCY LAW INDEX

SHUBHAMM SUKHLECHA (CA, CS, LLM)

 LESSON 12 - FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

LESSON 12 - FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

REGULATORY FRAMEWORK
⮞ Section 55 to 58 of the Insolvency and Bankruptcy Code, 2016
⮞ Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons)
Regulations, 2017

INTRODUCTION
Corporate failure may be due to business or financial failure. Business failure is break-down of business model and
inability to generate enough revenues. Financial failure is due to mismatch between payments and receivables of an
enterprise. A sound bankruptcy process helps the creditors and debtors to come to a platform that brings remedy for
business or financial failure. It is not necessary that the defaulting companies go for liquidation. There may be
situations in which a viable mechanism can be found through which the companies may be protected as a going
concern.
The Insolvency and Bankruptcy Code is a new generation law that provides efficient revival mechanism and also throws
challenges in the form of capacity building, harmonisation of various laws, creation of insolvency professionals,
development of regulatory platform and so on.
The aim of the Fast Track Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016 (‘Code’) is
to conclude the procedure within half of the default time period specified under the Code. The person or entity seeking
the fast relief will have onus on the process at set-off and that person or entity that sets-off the fast track process must
support that the case is fit for the fast track. Therefore, whosoever files the application for fast track process under
Chapter IV (Section 55) of the Insolvency and Bankruptcy Code will have to file the application along with the proof of
the existence of default as evidenced by records available with an information utility or such other means as may be
specified by the Board to establish that the corporate debtor is eligible for fast track corporate insolvency resolution
process.

FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

According to Section 55 of the Insolvency and Bankruptcy Code, 2016, a corporate insolvency resolution process
carried out in accordance with this Chapter IV of Part II of the Code shall be called as fast track corporate insolvency
resolution process. The Ministry of Corporate Affairs vide notification dated 14th June, 2017 notified the provisions of
section 55 to section 58 of the Code. Moreover, it notified that an application for fast track corporate insolvency
resolution process may be made in respect of the following corporate debtors:
(a) a small company as defined under clause (85) of section 2 of Companies Act, 2013; or
(b) a startup (other than the partnership firm) as defined in the notification of the Government of India in the
Ministry of Commerce and Industry number G.S.R. 501(e), dated the 23rd May, 2017 published in the Gazette
of India, extraordinary, Part II, Section 3, Sub- section (i), dated the 23rd May, 2017; or
(c) an unlisted company with total assets, as reported in the financial statement of the immediately preceding
financial year, not exceeding rupees one crore.
Fast Track corporate insolvency resolution process may be made in respect of the following corporate debtors:
 a corporate debtor with assets and income below a level as may be notified by the Central Government; or
 a corporate debtor with such class of creditors or such amount of debt as may be notified by the Central
Government; or
INSOLVENCY AND BANKRUPTCY LAW

 such other category of corporate persons as may be notified by the Central Government
SHUBHAMM SUKHLECHA (CA, CS, LLM)

As per the notification by the Ministry of Commerce and Industry, an entity shall be considered as a Startup:
(a) if it is incorporated as a private limited company (as defined in the Companies Act, 2013) or registered as
a partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited liability
partnership (under the Limited Liability Partnership Act, 2008) in India; and
(b) up to ten years from the date of its incorporation/ registration;

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 LESSON 12 - FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

(c) if its turnover for any of the financial years since incorporation/ registration has not exceeded Rupees 100
crores; and
(d) if it is working towards innovation, development or improvement of products or processes or services, or
if it is a scalable business model with a high potential of employment generation or wealth creation.
Provided that any such entity formed by splitting up or reconstruction of a business already in existence shall not
be considered a ‘Startup’.

TIME PERIOD FOR COMPLETION OF FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS
A Fast Track Insolvency Process is a speedy way to achieve corporate insolvency in 90 days as compared to the standard
180 day procedure provided under the Code where such faster process is available only in specific cases.
Section 56(2) states that the resolution professional shall file an application to the Adjudicating Authority to extend
the period of the fast track corporate insolvency resolution process beyond ninety days if instructed to do so by way
of a resolution passed at a meeting of the committee of creditors and supported by a vote of seventy- five per cent of
the voting share.
As per Section 56(3) on receipt of an application under sub-section (2), if the Adjudicating Authority is satisfied that
the subject-matter of the case is such that fast track corporate insolvency resolution process cannot be completed
within ninety days, it may, by order, extend the duration of such process beyond the said period ninety days by such
further period, as it thinks fit, but not exceeding forty-five days.
It may be noted that any extension of the fast track corporate insolvency resolution process under this section shall
not be granted more than once.

Time period for

completion of Fast •Fast Track Insolvency
Track Insolvency Process shall be
Process completed in 90 days

Application for •RP shall file application

Extension of Fast with NCLT if instructed to
Track Insolvency do so by 75% voting share
ProcessTimeline of Committee of Creditors

•The NCLT, if statisfied that case

Extension of Fast cannot be completed in 90 days,
may order extension beyond 90
Track Insolvency
days but not exceeding 45 days
Process Timeline
•Extension can be granted only
once

Manner of initiating fast track corporate insolvency resolution process

As per Section 57 of the Code, an application for fast track corporate insolvency resolution process may be filed by a
creditor or corporate debtor as the case may be, along with-
 the proof of the existence of default as evidenced by records available with an information utility or such other
means as may be specified by the Board; and
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

 such other information as may be specified by the Board to establish that the corporate debtor is eligible for
fast track corporate insolvency resolution process. Manner of initiating fast track corporate insolvency
resolution process.
INSOLVENCY AND BANKRUPTCY BOARD OF INDIA (FAST TRACK INSOLVENCY RESOLUTION PROCESS FOR
CORPORATE PERSONS) REGULATIONS, 2017

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 LESSON 12 - FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

Important Definitions
“Applicant” means the person filing an application under Chapter IV of Part II of the Code.
“Code” means the insolvency and Bankruptcy Code, 2016.
“Code of Conduct” means the code of conduct for insolvency professionals as set out in the Insolvency andBankruptcy
Board of India (Insolvency Professionals) Regulations, 2016.
“Committee” means a committee of creditors established under section 21.
“Dissenting Financial Creditor” means a financial creditor who voted against the resolution plan or abstainedfrom
voting for the resolution plan, approved by the committee.
“Electronic Form” shall have the meaning assigned to it inthe Information Technology Act, 2000.
“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
electronicmail address provided by such participant and keeping record of such communication.
“Evaluation Matrix” means such parameters to be applied and the manner of applying such parameters, asapproved
by the committee, for consideration of resolution plans for its approval.
“Fair Value” means the estimated realizable value of the assets of the corporate debtor, if they were to be exchanged
on the insolvency commencement date between a willing buyer and a willing seller in an arm’s length transaction,
after proper marketing and where the parties had acted knowledgeably, prudently and without compulsion.
“Fast Track Process” means the fast track insolvency resolution process for corporate persons under ChapterIV of Part
II of the Code.
“Fast Track Process Costs” means the costs in Regulation 30.

“Fast Track Process Period” means the period of ninety days beginning from the fast track recommencementdate and
ending on the ninetieth day.
“Identification Number” means the Limited Liability Partnership Identification Number under the Limited liability
Partnership act, 2008, or the Corporate Identity Number under the Companies Act, 2013, as the case may be.
“Fast Track Commencement Date” means the date of admission of an application by the adjudicating authorityfor
initiating the fast track process under Chapter IV of Part II of the Code.
“Insolvency Professional Entity” means an entity recognised as such under the Insolvency and Bankruptcy Board of
India (Insolvency Professionals) Regulations, 2016.

“Liquidation Value” means the estimated realizable value of the assets of the corporate debtor, if the corporatedebtor
were to be liquidated on the insolvency commencement date.
“Participant” means a person entitled to attend a meeting of the committee under section 24 or any other person
authorised by the committee to attend the meeting.
“Registered Valuer” means a person registered as such in accordance with the Companies Act, 2013 and rules made
thereunder.
“Section” means section of the Code.

“Video Conferencing or other audio and visual means” means such audio and visual facility which enables the
participants in a meeting to communicate concurrently with one another and to participate effectively in themeeting.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

Eligibility for Resolution Professional (Regulation 3)

1. An insolvency professional shall be eligible to be appointed as a resolution professional for a fast track process of
a corporate debtor if he, and all partners and directors of the insolvency professional entity of which he is a partner
or director are independent of the corporate debtor.

2. An insolvency professional shall not be eligible to be appointed as a resolution professional if he, or the insolvency

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 LESSON 12 - FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

professional entity of which he is a partner or director, is under a restraint order of the Board.

3. An insolvency professional shall make disclosures at the time of his appointment and thereafter in accordance
with the Code of Conduct.
An insolvency professional shall not continue as a resolution professional if the insolvency professional entity of which
he is a director or a partner, or any other partner or director of such insolvency professional entity represents any
other stakeholders in the same fast track process.

A person shall be considered independent of the corporate debtor, if he –

(a) is eligible to be appointed as an independent director on the board of the corporate debtor under section 149
of the Companies Act, 2013 (18 of 2013), where the corporate debtor is a company;
(b) is not a related party of the corporate debtor; or
(c) has not been an employee or proprietor or a partner:
1. of a firm of auditors or company secretaries in practice or cost auditors of the corporate debtor; or
2. of a legal or a consulting firm, which has or had any transaction with the corporate debtor amounting to
ten per cent or more of the gross turnover of such firm, at any time in the preceding three years.
Extortionate Credit Transaction (Regulation 5)
A transaction shall be considered an extortionate credit transaction under section 50(2) where the terms:
a) require the corporate debtor to make exorbitant payments in respect of the credit provided; or
b) are unconscionable under the principles of law relating to contracts.

Public Announcement (Regulation 6)

1. An insolvency professional shall make a public announcement immediately on his appointment as an interim
resolution professional.
Explanation: ‘immediately’ means not later than three days from the date of his appointment.
2. The public announcement referred to in sub- regulation (1) shall –
(a) be in Form A;
(b) (i) be published in one english and one regional language newspaper with wide circulation at the location
of the registered office and principal office, if any, of the corporate debtor and any other location where
in the opinion of the interim resolution professional, the corporate debtor conducts material business
operations;
(ii) be hosted on the website, if any, of the corporate debtor; and
(iii) be hosted on the website, if any, designated by the Board for the purpose.
(c) provide the last date for submission of proofs of claim, which shall be ten days from the date of appointment
of the interim resolution professional.
3. The applicant shall bear the expenses of the public announcement which may be reimbursed by the committee
to the extent it ratifies them.
Explanation - The expenses on the public announcement shall not form part of fast track process costs.

Access to books (Regulation 4)

The interim resolution professional may access the books of account, records and other relevant documents and
information, to the extent relevant for discharging his duties under the Code, of the corporate debtor held with-
(a) depositories of securities;
(b) professional advisors of the corporate debtor;
INSOLVENCY AND BANKRUPTCY LAW

information utilities;
SHUBHAMM SUKHLECHA (CA, CS, LLM)

(c)
(d) other registries that record the ownership of assets;
(e) members, promoters, partners, board of directors and joint venture partners of the corporate debtor; and
(f) contractual counter parties of the corporate debtor.

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 LESSON 12 - FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

Claims by Operational Creditors (Regulation 7)

1. An operational creditor, other than workman or employee of the corporate debtor, shall submit proof of his claim
to the interim resolution professional in person, by post or by electronic means in Form B.
Provided that such person may submit supplementary documents or clarifications in support of the claim before the
constitution of the committee.
2. The existence of debt due to the operational creditor under this regulation may be proved on the basis of-
(a) the records available with an information utility, if any; or
(b) other relevant documents, including -
 a contract for the supply of goods and services with corporate debtor;
 an invoice demanding payment for the goods and services supplied to the corporate debtoar;
 an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any; or
 financial accounts.

Claims by Financial Creditors (Regulation 8)

1. A financial creditor shall submit proof of claim to the interim resolution professional in electronic form in Form C:
Provided that such person may submit supplementary documents or clarifications in support of the claim before the
constitution of the committee.
2. The existence of debt due to the financial creditor may be proved on the basis of –
(a) the records available with an information utility, if any; or
(b) other relevant documents, including -
 a financial contract supported by financial statements as evidence of the debt;
 a record evidencing that the amounts committed by the financial creditor to the corporate debtor under a
facility has been drawn by the corporate debtor;
 financial statements showing that the debt has not been repaid; or
 an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any.
Claims by Workmen and Employees (Regulation 9)
1. A workman or an employee of the corporate debtor shall submit proof of claim to the interim resolution
professional in person, by post or by electronic means in Form D:

Provided that such person may submit supplementary documents or clarification in support of the claim, on his own
or if required by the interim resolution professional, before the constitution of the committee.

2. Where there are dues to numerous workmen or employees of the corporate debtor, an authorised representative
may submit one proof of claim for all such dues on their behalf in Form E.

3. The existence of dues to workmen or employees may be proved by them, individually or collectively on the basis
of –
(a) the records available with an information utility, if any; or

(b) other relevant documents, including -

 a proof of employment such as contract of employment for the period for which such workman or
employee is claiming dues;
 evidence of notice demanding payment of unpaid dues and any documentary or other proof that payment
has not been made; or
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

 an order of a court or tribunal that has adjudicated upon the non-payment of a dues, if any.

Claims by Other Creditors (Regulation 9A)

1. A person claiming to be a creditor, other than those covered under regulations 7, 8, or 9, shall submit proof of its
claim to the interim resolution professional or resolution professional in person, by post or by electronic means
in Form F of the Schedule.

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 LESSON 12 - FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

2. The existence of the claim of the creditor referred to in sub-section (1) may be proved on the basis of –
(a) the records available with an information utility, if any; or
(b) other relevant documents, including -
 a proof of employment such as contract of employment for the period for which such workman or
employee is claiming dues;
 evidence of notice demanding payment of unpaid dues and any documentary or other proof that payment
has not been made; or

 an order of a court or tribunal that has adjudicated upon the non-payment of a dues, if any.

Submission of Proof of Claims (Regulation 12)

1. Subject to sub-regulation (2), a creditor shall submit proof of his claim on or before the last date mentioned in the
public announcement.

2. A creditor, who failed to submit proof of claim within the time stipulated in the public announcement, may submit
proof of such claim to the interim resolution professional or the resolution professional, as the case may be, till
the approval of a resolution plan by the committee.

3. Where the creditor in sub-regulation (2) is a financial creditor, it shall be included in the committee from the date
of admission of such claim:

Provided that such inclusion shall not affect the validity of any decision taken by the committee prior to such inclusion.

SUBSTANTIATION (REGULATION 10)OF CLAIMS:

The interim resolution professional or the resolution professional, as the case may be, may call for such other evidence
or clarification as he deems fit from a creditor for substantiating the whole or part of its claim.

COST OF PROOF PROVING THEDEBT: (REGULATION 11)

A creditor shall bear the cost of proving the debt due to such creditor.

Verification of Claims (Regulation 13)

1. The interim resolution professional or the resolution professional, as the case may be, shall verify every claim, as
on the fast track commencement date, within seven days from the last date of the receipt of the claims, and
thereupon maintain a list of creditors containing names of creditors along with the amount claimed by them, the
amount of their claims admitted and the security interest, if any, in respect of such claims, and update it.
The list of creditors shall be –
 available for inspection by the persons who submitted proofs of claim;
 available for inspection by members, partners, directors and guarantors of the corporate debtor;
 displayed on the website, if any, of the corporate debtor;
 filed with the Adjudicating Authority; and
 presented at the first meeting of the committee.

Determination of Amount of Claim (Regulation 14)

1. Where the amount claimed by a creditor is not precise or cannot be determined due to any contingency or other
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

reason, the interim resolution professional or the resolution professional, as the case may be, shall make the best
estimate of the amount of the claim based on the information available with him.
2. The interim resolution professional or the resolution professional, as the case may be, shall revise the amount of
claims admitted, including the estimates of claims made under sub-regulation (1), as soon as may be practicable,
when he receives additional information warranting such revision.

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 LESSON 12 - FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

DEBT IN FOREIGN CURRENCY (REGULATION 15)

The claims denominated in foreign currency shall be valued in Indian currency at the official exchange rate as on the
fast track commencement date.
Explanation - “official exchange rate” means the reference rate published by the Reserve Bank of India or derived from
such reference rates.

Committee with Only Operational Creditors (Regulation 16)

1. Where the corporate debtor has no financial debt or where all financial creditors are related parties of the
corporate debtor, the committee shall be set up in accordance with this regulation.
2. The committee formed under this regulation shall consist of following members: -
a) eighteen largest operational creditors by value:
Provided that if the number of operational creditors is less than eighteen, the committee shall include all such
operational creditors;
b) one representative elected by all workmen other than those workmen included under sub-clause (a); and
c) one representative elected by all employees other than those employees included under sub- clause (a).
3. Every member of the committee formed under this regulation shall have voting rights in proportion of the debt
due to such creditor or debt represented by such representative, as the case may be, to the total debt.
4. A committee formed under this regulation and its members shall have the same rights, powers, duties and
obligations as a committee comprising financial creditors and its members, as the case may be.
‘Total debt’ means the sum of-
(a) the amount of debt due to the creditors listed in sub-regulation 2(a);
(b) the amount of the aggregate debt due to workmen under sub-regulation 2(b); and
(c) the amount of the aggregate debt due to employees under sub-regulation 2(c).

Filings by the Interim Resolution Professional (Regulation 17)

1. The interim resolution professional shall file a report certifying the constitution of the committee to the
adjudicating authority on or before the expiry of twenty-one days from the date of his appointment.
2. Based on records of the corporate debtor and claims, if the interim resolution professional is of the opinion that
the fast track process is not applicable to the corporate debtor as per notifications under section 55(2), he shall
file an application to the Adjudicating Authority along with the report in sub- regulation (1), to pass an order
converting the fast track process to corporate insolvency resolution process under Chapter II of Part II of the Code.
3. If the adjudicating authority passes an order converting fast track to corporate insolvency resolution process on
an application under sub-regulation (2), the process shall be carried on in accordance with the Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
4. The interim resolution professional shall convene the first meeting of the committee within seven days of filing
the report(s) under this Regulation.

MEETINGS OF THE COMMITTEE (REGULATION 18)

A resolution professional may convene a meeting of the committee as and when he considers necessary, and shall
convene a meeting if a request to that effect is made by members of the committee representing thirty- three per
cent of the voting rights.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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 LESSON 12 - FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

RP may convene meeting of

IRP shall file report IRP shall convene the first
Committee as and when he
certifying the constitution meeting of the Committee
considers and also if a request
of Committee with NCLT on with 7 days of filing the
is made for the same by the
or before 21 days from the report of constitution of
Committee representing 33%
date of his appointment Committee
of voting rights

Service of Notice by Electronic Means (Regulation 20)

1. A notice by electronic means may be sent to the participants through e-mail as a text or as an attachment to e-
mail or as a notification providing electronic link or Uniform Resource Locator for accessing such notice.
2. The subject line in e-mail shall state the name of the corporate debtor, the place, if any, the time and the date on
which the meeting is scheduled.
3. If notice is sent in the form of a non-editable attachment to an e-mail, such attachment shall be in the Portable
document Format or in a non-editable format together with a ‘link or instructions’ for recipient for downloading
relevant version of the software.
4. When notice or notifications of availability of notice are sent by an e-mail, the resolution professional shall ensure
that it uses a system which produces confirmation of the total number of recipients e-mailed and a record of each
recipient to whom the notice has been sent and copy of such record and any notices of any failed transmissions
and subsequent re-sending shall be retained as ‘‘proof of sending’’.
5. The obligation of the resolution professional shall be satisfied when he transmits the e-mail and he shall not be
held responsible for a failure in transmission beyond its control.
6. The notice made available on the electronic link or uniform resource locator shall be readable, and the recipient
should be able to obtain and retain copies and the resolution professional shall give the complete uniform
resource locator or address of the website and full details of how to access the document or information.
7. If a creditor, other than a member of the committee, fails to provide or update the relevant e-mail address to the
resolution professional, the non-receipt of such notice by such participant of any meeting shall not invalidate the
decisions taken at such meeting.

Timeline and mode of notice

A meeting of the committee shall be called by giving not less than seven days’ notice in writing to every creditor,
delivered at the address he has provided to the resolution professional and such notice may be served by hand
delivery, or by registered post but in any event, be served on every participant by electronic means.
The committee may reduce the notice period from seven days to such other period of not less than twenty four hours,
as it deems fit.

Contents of the Notice for Meeting (Regulation 21)

1. The notice shall inform the participants of the venue, the time and date of the meeting and of the option available
to them to participate through video conferencing or other audio and visual means, and shall also provide all the
necessary information to enable participation through such means.
2. The notice of the meeting shall provide that a creditor may attend and vote in the meeting either in person or
through an authorised representative:
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

Provided that such creditor shall inform the resolution professional, in advance of the meeting, of the identity of the
authorised representative who will attend and vote at the meeting on its behalf.
3. The notice of the meeting shall contain an agenda of the meeting with the following-
(i) a list of the matters to be discussed at the meeting;
(ii) a list of the issues to be voted upon at the meeting; and
(iii) copies of all documents relevant to the matters to be discussed and the issues to be voted upon at the

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 LESSON 12 - FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

meeting.
4. The notice of the meeting shall-
(a) state the process and the manner for voting and the time schedule, including the time period during which the
votes may be cast;
(b) provide the login ID and the details of a facility for generating password and for keeping security and casting of
an electronic vote in a secure manner; and
(c) provide contact details of the person who will address the queries connected with the voting.

Quorum at the Meeting (Regulation 22)

1. A meeting of the committee shall be quorate if members of the committee representing at least thirty- three
percent of the voting rights are present either in person or by video conferencing or other audio and visual means:
Provided that the committee may modify the percentage of voting rights required for quorum in respect of any
future meetings of the committee.
2. Where a meeting of the committee could not be held for want of quorum, unless the committee has previously
decided otherwise, the meeting shall automatically stand adjourned at the same time and place on the next day.
3. In the event a meeting of the committee is adjourned in accordance with sub-regulation (2), the adjourned
meeting shall be quorate with the members of the committee attending the meeting.

Participation through Video Conferencing (Regulation 23)

1. The notice convening the meetings of the committee shall provide the participants an option to attend the
meeting through video conferencing or other audio and visual means in accordance with this regulation.
2. The resolution professional shall make necessary arrangements to ensure uninterrupted and clear video or audio
and visual connection.
3. The resolution professional shall take due and reasonable care-
(a) to safeguard the integrity of the meeting by ensuring sufficient security and identification procedures;
(b) to ensure availability of proper video conferencing or other audio and visual equipment or facilities for
providing transmission of the communications for effective participation of the participants at the meeting;
(c) to record proceedings and prepare the minutes of the meeting;
(d) to store for safekeeping and marking the physical recording(s) or other electronic recording mechanism as part
of the records of the corporate debtor;
(e) to ensure that no person other than the intended participants attends or has access to the proceedings of the
meeting through video conferencing or other audio and visual means; and
(f) to ensure that participants attending the meeting through audio and visual means are able to hear and see, if
applicable, the other participants clearly during the course of the meeting:
Provided that the persons, who are differently abled, may make request to the resolution professional to allow a
person to accompany him at the meeting.
4. Where a meeting is conducted through video conferencing or other audio and visual means, the scheduled venue
of the meeting as set forth in the notice convening the meeting, which shall be in India, shall be deemed to be the
place of the said meeting and all recordings of the proceedings at the meeting shall be deemed to be made at
such place.

Conduct of Meeting (Regulation 24)

1. The resolution professional shall act as the Chairperson of the meeting of the committee.
INSOLVENCY AND BANKRUPTCY LAW

2. At the commencement of a meeting, the resolution professional shall take a roll call when every participant
SHUBHAMM SUKHLECHA (CA, CS, LLM)

attending through video conferencing or other audio and visual means shall state, for the record, the following:-
a) his name;
b) whether he is attending in the capacity of a member of the committee or any other participant;
c) whether he is representing a member or group of members;
d) the location from where he is participating;

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e) that he has received the agenda and all the relevant material for the meeting; and
f) that no one other than him is attending or has access to the proceedings of the meeting at the location of
that person.
3. After the roll call, the resolution professional shall inform the participants of the names of all persons who are
present for the meeting and confirm if the required quorum is complete.
4. The resolution professional shall ensure that the required quorum is present throughout the meeting.
5. From the commencement of the meeting till its conclusion, no person other than the participants and any other
person whose presence is required by the resolution professional shall be allowed access to the place where
meeting is held or to the video conferencing or other audio and visual facility, without the permission of the
resolution professional.
6. The resolution professional shall ensure that minutes are made in relation to each meeting of the committee and
such minutes shall disclose the particulars of the participants who attended the meeting in person, through video
conferencing, or other audio and visual means.
7. The resolution professional shall circulate the minutes of the meeting to all participants by electronic means
within forty-eight hours of the said meeting.

Voting by the Committee (Regulation 25)

1. The actions listed in section 28(1) shall be considered in meetings of the committee.
2. Any action other than those listed in section 28(1) may be considered in meetings of the committee.
3. The resolution professional may, at the meeting, take a vote of the members of the committee who are
participating in the meeting on any item listed for voting after discussion on the same.
4. The resolution professional shall –
a) circulate the minutes of the meeting by electronic means to all members of the committee within forty-
eight hours of the conclusion of the meeting; and
b) seek a vote on the matters listed for voting in the meeting from the members of the committee who did
not participate in the meeting or did not vote at the meeting, if any, by electronic means or electronic voting
system, where the voting shall be kept open for twenty-four hours from the circulation of the minutes.
5. At the end of the voting period, the electronic voting portal shall forthwith be blocked.
6. Once a vote on a resolution is cast by a member of the committee, such member shall not be allowed to change
it subsequently.
7. The resolution professional shall within twenty four hours of the conclusion of the voting, or forty eight hours of
the conclusion of the meeting if no electronic vote is required to be sought under this regulation, circulate by
electronic means the decision of the committee on agenda items along with the names of the members of the
committee who voted for or against the decision, or abstained from voting.
Explanation- For the purposes of these Regulations –

(a) the expressions ‘‘voting by electronic means’’ and its grammatical variant or ‘‘electronic voting system’’ means
a “secured system” based process of display of electronic ballots, recording of votes of the members of the
committee and the number of votes polled in favour or against, such that the voting exercised by way of
electronic means gets registered and counted in an electronic registry in a centralized server with adequate
cyber security;
(b) the expression ‘‘secured system’’ means computer hardware, software, and procedure that
i) are reasonably secure from unauthorized access and misuse;
ii) provide a reasonable level of reliability and correct operation;
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SHUBHAMM SUKHLECHA (CA, CS, LLM)

iii) are reasonably suited to perform the intended functions; and

iv) adhere to generally accepted security procedures.

Appointment of Registered Valuer (Regulation 26)

The resolution professional shall within seven days of his appointment, appoint one registered valuer to determine
the fair value and the liquidation value of the corporate debtor in accordance with regulation 34:

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 LESSON 12 - FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

Provided that the following persons shall not be appointed as registered valuers, namely:-
a) a relative of the resolution professional;
b) a related party of the corporate debtor;
c) an auditor of the corporate debtor at any time during the five years preceding the insolvency commencement
date; or
d) a partner or director of the insolvency professional entity of which the resolution professional is a partner or
director.

Transfer of Debt Due to Creditors (Regulation 27)

1. In the event a creditor assigns or transfers the debt due to such creditor to any other person during the fast track
process period, both parties shall provide the interim resolution professional or the resolution professional, as
the case may be, the terms of such assignment or transfer and the identity of the assignee or transferee.
2. The resolution professional shall notify each creditor and the adjudicating authority of any resultant change in the
committee within two days of such change.

Sale of Assets Outside the Ordinary Course of Business (Regulation 28)

1. The resolution professional may sell unencumbered asset(s) of the corporate debtor, other than in the ordinary
course of business, if he is of the opinion that such a sale is necessary for a better realisation of value under the
facts and circumstances of the case.
Provided that the book value of all assets sold during fast track process period in aggregate under this sub-regulation
shall not exceed ten percent of the total claims admitted by the interim resolution professional.
2. A sale of assets under this regulation shall require the approval of the committee.
3. A bona fide purchaser of assets sold under this Regulation shall have a free and marketable title to such assets
notwithstanding the terms of the constitutional documents of the corporate debtor, shareholders’ agreement,
joint venture agreement or other document of a similar nature.

Assistance of Local District Administration (Regulation 29)

The interim resolution professional or the resolution professional, as the case may be, may make an application to the
adjudicating authority for an order seeking the assistance of the local district administration in discharging his duties
under the Code or these regulations.

Fast Track Process Costs Regulation 30

a) the amount of any interim finance and the costs incurred in raising such finance; the fees payable to any person
acting as a resolution professional;
b) any costs incurred by the resolution professional in running the business of the corporate debtor as a going
concern;
c) any costs incurred at the expense of the Government to facilitate the process;
d) amounts due to suppliers of essential goods and services under Regulation 31;
e) amounts due to a person whose rights are prejudicially affected on account of the moratorium imposed under
section 14(1)(d);
f) expenses incurred on or by the interim resolution professional to the extent ratified under Regulation 32;
g) expenses incurred on or by the resolution professional fixed under Regulation 33; and
h) other costs directly relating to the fast track process and approved by the committee.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

Costs of The Interim Resolution Professional (Regulation 32)

1. The applicant shall fix the expenses to be incurred on or by the interim resolution professional.
2. The Adjudicating Authority shall fix expenses where the applicant has not fixed expenses under sub- regulation
(1).

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3. The applicant shall bear the expenses which shall be reimbursed by the committee to the extent it ratifies.
4. The amount of expenses ratified by the committee shall be treated as fast track process costs.

What are essential services under regulation 31?

The essential goods and services referred to in Section 14(2) shall mean-
(a) electricity;
(b) water;
(c) telecommunication services; and
(d) information technology services, to the extent these are not a direct input to the output produced or supplied
by the corporate debtor.
Illustration: Water supplied to a corporate debtor will be essential supplies for drinking and sanitation purposes, and
not for generation of hydro-electricity.

Resolution Professional Costs (Regulation 33)

The committee shall fix the expenses to be incurred on or by the resolution professional and the expenses shall
constitute fast track process costs.
Explanation- For the purposes of Regulation 32 & 33, “expenses” means the fee to be paid to the interim resolution
professional/ resolution professional and other expenses, including the cost of engaging professional advisors, to be
incurred by the interim resolution professional.

Fair Value and Liquidation Value (Regulation 34)

1. The registered valuer appointed under regulation 26 shall submit to the resolution professional an estimate of
the fair value and of the liquidation value computed in accordance with internationally accepted valuation
standards, after physical verification of the inventory and fixed assets of the corporate debtor.
2. After the receipt of resolution plans in accordance with the Code and these regulations, the resolution
professional shall provide the fair value and the liquidation value to every member of the committee in electronic
form, on receiving an undertaking from the member to the effect that such member shall maintain confidentiality
of the fair value and the liquidation value and shall not use such values to cause an undue gain or undue loss to
itself or any other person and comply with the requirements under sub- section (2) of the section 29.
3. The resolution professional and registered valuer shall maintain the confidentiality of the fair value and the
liquidation value.

Information Memorandum (Regulation 35)

1. Subject to sub-regulation (4), the resolution professional shall submit the information memorandum in electronic
form to-

a) each member of the committee within two weeks of his appointment as resolution professional; and

b) each prospective resolution applicant latest by the date of invitation of resolution plan under clause (h) of
sub-section (2) of section 25 of the Code.
2. The information memorandum shall contain the following details of the corporate debtor-
a) Assets and liabilities with such description, as on the insolvency commencement date, as are generally
necessary for ascertaining their values;
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b) the latest annual financial statements;

SHUBHAMM SUKHLECHA (CA, CS, LLM)

c) audited financial statements of the corporate debtor for the last two financial years and provisional financial
statements for the current financial year made up to a date not earlier than fourteen days from the date of
the application;
d) a list of creditors containing the names of creditors, the amounts claimed by them, the amount of their claims
admitted and the security interest, if any, in respect of such claims;
e) particulars of a debt due from or to the corporate debtor with respect to related parties;

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f) details of guarantees that have been given in relation to the debts of the corporate debtor by other persons,
specifying which of the guarantors is a related party;
g) the names and addresses of the members or partners holding at least one per cent stake in the corporate
debtor along with the size of stake;
h) details of all material litigation and an ongoing investigation or proceeding initiated by Government and
statutory authorities;
i) the number of workers and employees and liabilities of the corporate debtor towards them;
j) [Omitted by Notification No. IBBI/ 2017-18/GN/REG23, dated 31st December, 2017 (w.e.f. 01.01.2018). Prior
to its omission, it stood as “( j) the liquidation value]
k) [Omitted by Notification No. IBBI/ 2017-18/GN/REG23, dated 31st December, 2017 (w.e.f. 01.01.2018). Prior
to its omission, it stood as “(k) the liquidation value due to operational creditors; and”]
l) Other information, which the resolution professional deems relevant to the committee.
3. A member of the committee may request the resolution professional for further information of the nature
described in this regulation and the resolution professional shall provide such information to all members within
reasonable time if such information has a bearing on the resolution plan.
4. The resolution professional shall share the information memorandum after receiving an undertaking from a
member of the committee or a prospective resolution applicant to the effect that such member or resolution
applicant shall maintain confidentiality of the information and shall not use such information to cause an undue
gain or undue loss to itself or any other person and comply with the requirements under sub-section (2) of section
29.

Invitation of Resolution Plans (Regulation 35A)

1. The resolution professional shall issue an invitation, including evaluation matrix, to the prospective resolution
applicants in accordance with clause (h) of sub-section (2) of section 25, to submit resolution plans at least fifteen
days before the last date of submission of resolution plans.
2. Where the invitation does not contain the evaluation matrix, the resolution professional shall issue, with the
approval of the committee, the evaluation matrix to the prospective resolution applicants at least eight days
before the last date for submission of resolution plans.
3. The resolution professional may modify the invitation, the evaluation matrix or both with the approval of the
committee within the timelines given under sub-regulation (1) or sub-regulation (2) as the case may be.
4. The timelines specified under this regulation shall not apply to an ongoing fast track corporate insolvency
resolution process
(a) Where a period of less than twenty-two days is left for submission of resolution plans under sub- regulation
(1);
(b) Where a period of less than eleven days is left for submission of resolution plans under sub- regulation (2).
5. The resolution professional shall publish brief particulars of the invitation in Form G of the Schedule:
(a) on the website, if any, of the corporate debtor; and
(b) on the website, if any, designated by the Board for the purpose.
The said Regulation was inserted by by Notification No. IBBI/2017-18/ GN/REG025, dated 7th February, 2018

Resolution Plan (Regulation 36)

1. A resolution plan shall provide for the measures, as may be necessary for insolvency resolution of the corporate
debtor for maximization of value of its assets, including but not limited to the following:
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

a) Transfer of all or part of assets of the corporate debtor to one or more persons;
b) sale of all or part of the assets whether subject to any security interest or not;
c) the substantial acquisition of shares of the corporate debtor, or the merger or consolidation of the corporate
debtor with one or more persons;
d) satisfaction or modification of any security interest;
e) curing or waiving of any breach of the terms of any debt due from the corporate debtor;

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 LESSON 12 - FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

f) reduction in the amount payable to the creditors;

g) extension of a maturity date or a change in interest rate or other terms of a debt due from the corporate
debtor;
h) amendment of the constitutional documents of the corporate debtor;
i) issuance of securities of the corporate debtor, for cash, property, securities, or in exchange for claims or
interests, or other appropriate purpose;
j) change in portfolio of goods or services produced or rendered by the corporate debtor;
k) change in technology used by the corporate debtor; and
l) obtaining necessary approvals from the Central and State Governments and other authorities.

Mandatory Contents of The Resolution Plan (Regulation 37)

1. A resolution plan shall identify specific sources of funds that will be used to pay the -
(a) fast track process costs and provide that the fast track process costs will be paid in priority to any other
creditor;
(b) liquidation value due to operational creditors and provide for such payment in priority to any financial creditor
which shall in any event be made before the expiry of thirty days after the approval of a resolution plan by the
adjudicating authority; and
(c) liquidation value due to dissenting financial creditors and provide that such payment is made before any
recoveries are made by the financial creditors who voted in favour of the resolution plan.
1A. A resolution plan shall include a statement as to how it has dealt with the interests of all stakeholders, including
financial creditors and operational creditors, of the corporate debtor. [Inserted by Notification No. IBBI/2017-18/GN/
REG017, dated 5th October, 2017]
2. A resolution plan shall provide:
(a) the term of the plan and its implementation schedule;
(b) the management and control of the business of the corporate debtor during its term; and
(c) adequate means for supervising its implementation.
3. A resolution plan shall contain details of the resolution applicant and other connected persons to enable the
committee to assess the credibility of such applicant and other connected persons to take a prudent decision
while considering the resolution plan for its approval.
For the purposes of this sub-regulation, ‘details’ shall include the following in respect of the resolution applicant and
other connected persons, namely:-

(a) identity;
(b) conviction for any offence, if any, during the preceding five years;
(c) criminal proceedings pending, if any;
d) disqualification, if any, under Companies Act, 2013, to act as a director;
e) identification as a willful defaulter, if any, by any bank or financial institution or consortium thereof in
accordance with the guidelines of the Reserve Bank of India;
f) debarment, if any, from accessing to, or trading in, securities markets under any order or directions of the
Securities and Exchange Board of India; and
g) transactions, if any, with the corporate debtor in the preceding two years.

The expression ‘connected persons’ means-

(a) persons who are promoters or in the management or control of the resolution applicant;
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

(b) persons who will be promoters or in management or control of the business of the corporate debtor during
the implementation of the resolution plan ;
(c) holding company, subsidiary company, associate company and related party of the persons referred to in
items (a) and (b).

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 LESSON 12 - FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

Approval of Resolution Plan (Regulation 38)

1. A resolution applicant shall submit resolution plan(s) prepared in accordance with the Code and these regulations
to the resolution professional within the time given in the invitation made under clause (h) of sub- section (2) of
section 25.
2. The resolution professional shall submit to the committee all resolution plans which comply with the
requirements of the Code and regulations made thereunder along with the details of following transactions, if
any, observed, found or determined by him:-
(a) preferential transactions under section 43;
(b) undervalued transactions under section 45;
(c) extortionate credit transactions under section 50; and
(d) fraudulent transactions under section 66,
and the orders, if any, of the adjudicating authority in respect of such transactions.
3. The committee may approve any resolution plan with such modifications as it deems fit.

3A. The committee shall, while approving the resolution plan under sub-section (4) of section 30, specify the amounts
payable from resources under the resolution plan for the purposes under sub-regulation(1) of regulation 37. [Inserted
vide Notification No. IBBI/2017-18/ GN/REG025, dated 07th February, 2018]
4. The resolution professional shall submit the resolution plan approved by the committee to the Adjudicating
Authority, at least fifteen days before the expiry of the maximum period permitted under section 56 for the
completion of the fast track corporate insolvency resolution process, with the certification that –
(a) the contents of the resolution plan meet all the requirements of the Code and the Regulations; and
(b) the resolution plan has been approved by the committee:
Provided that the timeline specified in this sub-regulation shall not apply to an ongoing fast track corporate
insolvency resolution process which has completed 50th day from its commencement date.
5. The resolution professional shall forthwith send a copy of the order of the adjudicating authority approving or
rejecting a resolution plan to the participants and the resolution applicant.
6. A provision in a resolution plan which would otherwise require the consent of the members or partners of the
corporate debtor, as the case may be, under the terms of the constitutional documents of the corporate debtor,
shareholders’ agreement, joint venture agreement or other document of a similar nature, shall take effect
notwithstanding that such consent has not been obtained.
7. No proceedings shall be initiated against the interim resolution professional or the resolution professional, as the
case may be, for any actions of the corporate debtor, prior to the fast track commencement date.
8. A person in charge of the management or control of the business and operations of the corporate debtor after a
resolution plan is approved by the adjudicating authority, may make an application to the adjudicating authority
for an order seeking the assistance of the local district administration in implementing the terms of a resolution
plan.
What is extortionate credit transaction?
A transaction shall be considered an extortionate credit transaction under section 50(2) where the terms:
(a) require the corporate debtor to make exorbitant payments in respect of the credit provided; or
(b) are unconscionable under the principles of law relating to contracts.

Extension of the Fast Track Process Period(Regulation 39)

1. The committee is of the opinion that the fast track process cannot be completed within the stipulated 90 days,
it may instruct the resolution professional to make an application to the adjudicating authority under section 56
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SHUBHAMM SUKHLECHA (CA, CS, LLM)

to extend the fast track process period.

2. The resolution professional shall, on receiving an instruction from the committee under this regulation, make
an application to the adjudicating authority for such extension.

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 LESSON 12 - FAST TRACK CORPORATE INSOLVENCY RESOLUTION PROCESS

CASE LAW
In the matter of Sanjay Kumar Ruia v. Catholic Syrian Bank Ltd. & Anr. (Company Appeal (AT) (Insolvency) No. 560 of
2018) dated: 03.01.2019 appeal was filed before the National Company Law Appellate Tribunal (NCLAT) against the
order dated 25th July, 2018 passed by the National Company Law Tribunal Mumbai Bench, Mumbai.
NCLT extended the period of resolution process in exercise of power conferred under Section 55 of the Code treating
the matter as ‘Fast Track CIRP’ also determining the ‘CIRP fee’ and the ‘cost’ incurred and payable to Appellant.
NCLAT noted that Corporate Debtor does not fall under any of the category of clauses (a), (b) or (c) of sub- section (2)
of Section 55 of the Code as it neither has its assets and income below a level nor having class of creditors or amount
of debt as notified by the Central Government.
In the present case, the application was not filed under Section 55 but filed under Section 9 of the Code. It is clear that
the ‘Fast Track Corporate Insolvency Resolution Process’ is different from ‘Corporate Insolvency Resolution Process’
against such Corporate Debtors(s) as may be notified by the Central Government in terms of clauses (a), (b) & (c) of
Section 55(2).
It was held that the NCLT had no jurisdiction to proceed with the ‘Corporate Insolvency Resolution Process’ beyond
the period of 270 days and it cannot exercise its power under sub-section (2) of Section 55 of the Code, which was not
applicable, and therefore the Adjudicating Authority has no power to convert the ‘Corporate Insolvency Resolution
Process’ into a ‘Fast Track Corporate Insolvency Resolution Process’ under Section 55 of the Code.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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 LESSON 13 - ADJUDICATION AND APPEALS FOR CORPORATE PERSONS

LESSON 13 - ADJUDICATION AND APPEALS FOR CORPORATE PERSONS

REGULATORY FRAMEWORK
⮞ Section 408 of Companies Act, 2013
⮞ Section 60 to 67A of the Insolvency and Bankruptcy Code, 2016
⮞ The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016

INTRODUCTION
Understanding of Adjudicating Authority and its jurisdiction enables an applicant to file the application in right forum.
Time is the essence of the Insolvency and Bankruptcy Code, 2016 (‘Code’) and to ensure effective and successful
implementation of the Code; adherence to the timelines prescribed under the Code is of utmost importance.
Adjudicating authority is one of the key institutional pillars and backbone of the insolvency ecosystem of India.
Adjudicating authority plays a two-fold role while functioning under the Code. One role is administrative in nature and
other is judicial in nature. By administrative, it means that adjudicating authority has to ascertain whether a particular
case is complete in terms of Section 7/9/10 of the Insolvency and Bankruptcy Code, 2016 (as the case may be) or it
suffers from some defect. Whereas by judicial, it means to decide whether to admit corporate insolvency resolution
process or liquidation of a corporate debtor or not.
This lesson enables a reader to understand:
 Adjudicating Authority for dealing with corporate insolvency resolution process and corporate liquidation.
 Appellate Authority under the Code and timeline to prefer appeal.
 NCLT Benches across India and their jurisdiction.
 Applicability of Limitation Act, 1963 for proceedings undergoing the Code.
 Penalty provisions for initiating fraudulent or malicious proceedings under the Code.
 Penalty provisions where corporate debtor is involved in fraudulent or wrongful trading.

To ensure better understanding of readers about the Insolvency and Bankruptcy Code, 2016 and its applicability;
reference to case laws have also been made.

ADJUDICATING AUTHORITY FOR CORPORATE PERSONS

Section 60 of the Insolvency and Bankruptcy Code, 2016 deals with Adjudicating Authority (AA) in relation to insolvency
resolution and liquidation for corporate persons. Corporate person includes corporate debtors and personal
guarantors. AA in relation to corporate person is National Company Law Tribunal (NCLT) having territorial jurisdiction
over the place where the registered office of a corporate person is located.
In the case of M/s. Fortune Plastech v/s. M/s. Avni Energy Solutions Private Limited, the matter was filed before NCLT,
Bengaluru Bench, under Section 9 of the Insolvency and Bankruptcy Code, 2016 dealing with the initiation of corporate
insolvency process by Operational Creditor. The application was dismissed by NCLT on the grounds that the petition
was filed by the Petitioner with the wrong Bench. Since the Respondent Company is registered in Andhra Pradesh, so
as per the jurisdiction, the case is to be filed at NCLT, Hyderabad Bench rather than NCLT, Bengaluru Bench. Therefore,
learned counsel of the Petitioner withdrew the petition with the liberty to file the same before NCLT, Hyderabad
Bench.
INSOLVENCY AND BANKRUPTCY LAW

In E S Krishnamurthy & Ors. Vs. M/s Bharath Hi Tech Builders Pvt. Ltd., the Supreme Court was asked to decide on
SHUBHAMM SUKHLECHA (CA, CS, LLM)

whether the Adjudicating Authority could dismiss the petition under Section 7 because the corporate debtor had
started the process of settling with the financial creditors while handling an application under the Code without
considering its merits. Whether the NCLT and NCLAT were right in their approach to reject the appellants’ Section 7
petition at the “pre-admission stage” and order them to reach a settlement with the Respondent within three months.
In the said matter, Supreme Court held that the Adjudicating Authority must either admit the CIRP application or it

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must reject the same. The Code does not provide for the Adjudicating Authority to undertake any other action, but for
the two choices available. Also, the Adjudicating Authority is empowered only to verify whether a default has occurred
or not. Based upon its decision, the Adjudicating Authority must then either admit or reject an application respectively.
These are the only two courses of action which are open to the Adjudicating Authority in accordance with Section 7(5)
of the Code. The Adjudicating Authority cannot compel a party to the proceedings before it to settle a dispute.
Notwithstanding anything to the contrary contained in the Insolvency and Bankruptcy Code, 2016, where a corporate
insolvency resolution process or liquidation proceeding of a corporate debtor is pending before a National Company
Law Tribunal, an application relating to insolvency resolution process or liquidation or bankruptcy of a corporate
guarantor or personal guarantor of such corporate debtor (as the case may be) shall be filed before the NCLT.
In the case of State Bank of India v/s. D.S Rajendra Kumar, it is observed that if corporate insolvency resolution process
of corporate debtor has been initiated before NCLT, then insolvency resolution process of personal guarantor of the
corporate debtor can be initiated before same NCLT Bench instead of Debt Recovery Tribunal (“DRT”).Further, it was
also held in this case that order of moratorium is applicable only to the proceedings against corporate debtor and the
personal guarantor but not applicable for filing application for initiating corporate insolvency resolution process
against the guarantor or personal guarantor (NCLAT order dated 18th April, 2018)
However, corporate insolvency resolution process or liquidation or bankruptcy proceeding of a corporate guarantor
or personal guarantor (as the case may be) pending in any court or tribunal shall be transferred to the AA dealing with
corporate insolvency resolution process or liquidation proceeding of such corporate debtor.
In the case of Sanjeev Shriya v/s. State Bank of India, Allahabad High Court held that two parallel proceeding against
the corporate debtor and the personal guarantor cannot go simultaneously in two different jurisdictions. (Allahabad
High Court order dated 6th September, 2017)
Not with standing anything to the contrary contained in any other law for the time being in force, NCLT shall have
jurisdiction to entertain or dispose of:

any claim made by or

any application or against the corporate
proceeding by or debtor or corporate
against the corporate person, including
debtor or corporate claims by or against
person; any of its subsidiaries
situated in India; and

any question of priorities or

any question of law or facts,
arising out of or in relation to
the insolvency resolution or
liquidation proceedings of
the corporate debtor or
corporate person under this
Code.
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SHUBHAMM SUKHLECHA (CA, CS, LLM)

AA has jurisdiction to entertain or dispose of an application or proceeding by or against the corporate debtor or
corporate person including any claim made by or against the corporate debtor or corporate person, including claims
by or against any of its subsidiaries situated in India.

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Supreme Court in the matter of Tata Consultancy Services Ltd. Vs. Vishal Ghisulal Jain, RP, SK Wheels Pvt. Ltd held
that the residuary jurisdiction of the NCLT under Section 60(5)(c) of the Code cannot be invoked if the termination of
a contract is based on grounds unrelated to the insolvency of the Corporate Debtor. In any case, the NCLT and NCLAT’s
action cannot be viewed as a rewriting of the parties’ agreement. The NCLT and NCLAT have the authority to take
action if a third party’s action threatens to topple the CIRP. They are entrusted with the duty of protecting the
Corporate Debtor’s existence.
Notwithstanding anything contained in the Limitation Act, 1963 or in any other law for the time being in force, in
computing the period of limitation specified for any suit or application by or against a corporate debtor for which an
order of moratorium has been passed, the period during which such moratorium is in place shall be excluded.
In the matter of New Delhi Municipal Council Vs. Minosha India Ltd., in May 2018, NCLT, Mumbai Bench admitted an
application under Section 10 of the Code and declared the moratorium. In November 2019, resolution plan in respect
of the corporate debtor was approved by the NCLT. In November 2020, the Respondent filed an application under
Section 11(6) of the Arbitration and Conciliation Act, 1996 and accordingly, the High Court of Delhi allowed the
application and appointed an Arbitrator.
The impact of Section 60(6) of the Code and whether the aforementioned provision gives rise to a new lease of life to
a proceeding at the instance of the corporate debtor on the basis of a moratorium that was in place are the questions
that need to be answered in this appeal. It also needs to be determined whether the corporate debtor can use the
aforementioned provision to bring the application in this case that was filed under Section 11(6) of the Arbitration and
Conciliation Act, 1996.
In the aforementioned case, the Supreme Court ruled that Section 60(6) of the IBC does allow for the exclusion of the
entire time the corporate debtor’s moratorium was in effect from any action that is intended to be brought against it.
Under the IBC, by virtue of the order admitting the CIRP application and imposing moratorium, proceedings as are
contemplated in Section 14 would be tabooed. This also does not include an application under Section 11(6) of the
Arbitration and Conciliation Act, 1996 by the corporate debtor. Additionally, there is no explicit exclusion of the Court’s
jurisdiction or authority to hear any such case brought by the corporate debtor.

Who shall be the Adjudicating Authority for a corporate person?

In case of a corporate person including corporate debtors and personal guarantors the Adjudicating Authority shall
be National Company Law Tribunal (NCLT) having territorial jurisdiction over the place where the registered office
of the corporate person is situated, as per section 60 (1) of the Code. Further as per section 60 (2), the Code provides
that without any prejudice to section 60 (1), where the corporate insolvency resolution process or liquidation
proceeding of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the
insolvency resolution or liquidation or bankruptcy of a corporate guarantor or personal guarantor, of such corporate
debtor shall be filed before such National Company Law Tribunal (NCLT).
In addition to the above, section 60 (3) 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 insolvency resolution process
or liquidation processing of such corporate debtor
What are the jurisdictional powers of Adjudicating Authority?
As per Section 60 of the Code, the Adjudicating Authority i.e., National Company Law Tribunal shall have jurisdiction
to entertain or dispose of the following:-
(a) any application or proceeding by or against the Corporate Debtor / Corporate person;
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SHUBHAMM SUKHLECHA (CA, CS, LLM)

(b) any claim made by or against the Corporate Debtor or Corporate Person, including claims by or against any
of its subsidiaries situated in India.
(c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency
resolution or liquidation proceedings of the corporate debtor or corporate person under this Code.

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 LESSON 13 - ADJUDICATION AND APPEALS FOR CORPORATE PERSONS

APPEALS AND APPELLATE AUTHORITY

Section 61 of the Insolvency and Bankruptcy Code, 2016 provides that notwithstanding anything to the contrary
contained under the Companies Act 2013, any person aggrieved by the order of the AA in the context of corporate
insolvency resolution process or liquidation of corporate person may prefer an appeal to the National Company Law
Appellate Tribunal (NCLAT).
Every appeal before NCLAT shall be filed within thirty days (30 days) from the date of receipt of such order. However,
NCLAT may allow one time extension of fifteen days (15 days) to file an appeal after the expiry of 30 days if it is satisfied
that there was sufficient cause for not filing the appeal within first 30 days.
An appeal against an order approving a resolution plan under Section 31 of the Insolvency and Bankruptcy Code, 2016
may be filed on the following grounds:

The approved resolution plan is in contravention of the provisions of any law for the time being in force;

There has been material irregularity in exercise of the powers by the resolution professional during
the corporate insolvency resolution period;

The insolvency resolution process costs have not been provided for repayment in priority to all
other debts; or

The debts owed to operational creditors of the corporate debtor have not been provided for in the
resolution plan in the manner specified by the Insolvency and Bankruptcy Board of India (“Board”);

The resolution plan does not comply with any other criteria specified by the Board.

An appeal against a liquidation order passed under Section 33 of the Insolvency and Bankruptcy Code, 2016 may be
filed on grounds of material irregularity or fraud committed in relation to such a liquidation order.
In the case of Steel Konnect (India) Private Limited v/s. Hero Fincorp Ltd., initially Courts were of view that once an
insolvency application is admitted, the Code does not permit erstwhile company directors to maintain an appeal on
behalf of the corporate debtor and only the Interim Resolution Professional (“IRP”) can maintain an appeal on behalf
of the company.
Further, it was observed the power of the IRP as provided under the Code does not include the power to initiate
proceedings on behalf of the Corporate debtor. The aforesaid issue was raised in Steel Konnect (India) Pvt Ltd v. M/s
Hero Fincorp Ltd, where it was held that upon admission of application under the Insolvency and Bankruptcy Code,
2016 and commencement of corporate insolvency resolution process, for preferring an appeal before NCLAT; the
corporate debtor can appear through its Board of Directors or its officer or its authorized representative.
If corporate debtor is represented before AA during appeal through its Board of directors, no objection can be raised
in this regard as initiation of corporate insolvency resolution process only suspends functioning of Board of directors
in that corporate debtor not the Board of directors as a whole. Also, the directors continue to be in their position and
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

are still present in the records maintained by the Registrar of Companies and are just put in temporary suspension for
180/270 days till continuation of the insolvency resolution process. (NCLAT order dated 29th August, 2017)
In the case of Uttam Galva Steels Limited v/s. Union of India, Bombay High Court provided interim protection to the
petitioners to withdraw the petition with the liberty to petitioners to prefer appeal under Section 61 of the Code.
Bombay High Court also stated that since Interim Resolution Professional has not been appointed in the said case and
keeping in view the consequences of appointment of Interim Resolution Professional, Bombay High Court in the

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 LESSON 13 - ADJUDICATION AND APPEALS FOR CORPORATE PERSONS

interest of justice directed not to appoint Interim Resolution Professional from next two weeks from the date of this
order thereby allowing time to the petitioner to prefer an appeal. Order also provided that interim protection provided
by the Court shall not be considered as expression of view of the Bombay High Court by the appellate authority while
deciding the appeal. (Bombay High Court order dated 20th April, 2017)

APPEAL TO SUPREME COURT

Section 62 of the Insolvency and Bankruptcy Code, 2016 provides that, any person aggrieved by the order of NCLAT
may prefer an appeal to the Supreme Court (SC) on a question of law arising out of such order.

Every appeal before SC shall be filed within forty five (45 days) from the date of receipt of such order. However SC may
allow one time extension of fifteen days (15 days) to file an appeal after the expiry of 45 days if it is satisfied that there
was sufficient cause for not filing the appeal within first 45 days.

NCLT

Appeal within 30 days

from the date of passing
NCLT Order + one time 15
days
extension (if allowed)

NCLAT

Appeal within 45 days

from the date of passing
NCLAT Order + one time 15
days
extension (if
SUPREME allowed)extension (if
allowed)
COURT

NCLT BENCHES & THEIR JURISDICTION

In the first phase the Ministry of Corporate Affairs had set-up eleven Benches, one Principal Bench at New Delhi and
one each regional Benches at New Delhi, Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati,
Hyderabad, Jaipur, Kolkata and Mumbai, and later added Cuttack, Kochi, Indore, and Amravati taking total number to
fifteen Benches:
S.No. Name of Bench Location Territorial Jurisdiction of the Bench
1 a) National Company Law Tribunal, New Delhi 1. Union territory of Delhi.
Principal Bench.
b) National Company Law Tribunal,
New Delhi Bench.
2 National Company Law Tribunal, Ahmedabad 1. State of Gujarat.
Ahmedabad Bench.
2. Union territory of Dadra and Nagar Haveli.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

3. Union territory of Daman and Diu.

3 National Company Law Tribunal, Allahabad 1. State of Uttar Pradesh.
Allahabad Bench.
2. State of Uttarakhand.
4 National Company Law Tribunal, Bengaluru 1. State of Karnataka.
Bengaluru Bench.

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 LESSON 13 - ADJUDICATION AND APPEALS FOR CORPORATE PERSONS

5 National Company Law Tribunal, Chandigarh 1. State of Himachal Pradesh.

Chandigarh Bench.
2. State of Jammu and Kashmir.
3. State of Punjab.
4. Union territory of Chandigarh.
5. State of Haryana.
6 National Company Law Tribunal, Chennai 1. State of Tamil Nadu.
Chennai Bench.
2. Union territory of Puducherry.
7 National Company Law Tribunal, Cuttack 1. State of Chhattisgarh.
Cuttack Bench.
2. State of Odisha.
8 National Company Law Tribunal, Guwahati 1. State of Arunachal Pradesh.
Guwahati Bench.
2. State of Assam.
3. State of Manipur.
4. State of Mizoram.
5. State of Meghalaya.
6. State of Nagaland.
7. State of Sikkim.
8. State of Tripura.
9 National Company Law Tribunal, Hyderabad 1. State of Telangana.
Hyderabad Bench.
10 National Company Law Tribunal, Jaipur Jaipur 1. State of Rajasthan.
Bench.
11 National Company Law Tribunal, Kolkata 1. State of Bihar.
Kolkata Bench.
2. State of Jharkhand.
3. State of West Bengal.
4. Union territory of Andaman and Nicobar Islands.
12 National Company Law Tribunal, Mumbai 1. State of Goa.
Mumbai Bench.
2. State of Maharashtra.
13 National Company Law Tribunal, Kochi Kochi 1. State of Kerala.
Bench.
2. Union territory of Lakshadweep.
14 National Company Law Tribunal, Indore Indore 1. State of Madhya Pradesh.
Bench.
15 National Company Law Tribunal, Amravati 1. State of Andhra Pradesh.
Amravati Bench.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

In case of Gujarat Urja Vikas Nigam Ltd. Vs. Amit Gupta & Ors. [Civil Appeal No. 9241 of 2019] SC order dt.
08.03.2021, Court held that-
i. NCLT/NCLAT can exercise jurisdiction under section 60(5)(c) of the Code to stay termination of contracts solely
on account of CIRP being initiated against the CD.
ii. NCLT has the jurisdiction to adjudicate disputes, which arise solely from or which relate to the insolvency of

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 LESSON 13 - ADJUDICATION AND APPEALS FOR CORPORATE PERSONS

the CD; however, in doing so, the NCLT and NCLAT must ensure that they do not usurp the legitimate
jurisdiction of other courts and tribunals.
iii. RP can approach the NCLT for adjudication of disputes that are related to the insolvency resolution process.
However, for adjudication of disputes out of the insolvency, the RP must approach the competent authority.
iv. NCLT cannot do what the Code consciously did not provide it the power to do.
v. The jurisdiction of the NCLT cannot be invoked in matters where a termination may take place on grounds
unrelated to the insolvency of the CD.
vi. It cannot even be invoked in the event of a legitimate termination of a contract based on an ipso facto clause,
if such termination will not have the effect of making certain the death of the CD.
vii. NCLT to be cautious in setting aside valid contractual terminations which would merely dilute the value of the
CD, and not push it to its corporate death.

Note: With effect from 1st June,2016 NCLAT was established under Section 410 of the Companies Act, 2013 to consider
appeals against NCLT orders. With effect from 1st December 2016, NCLAT is also the Appellate Tribunal for hearing
appeals against the decisions made by NCLT(s) under Section 61 of the Code. For challenges against decisions made
by the Insolvency and Bankruptcy Board of India under Section 202 and 211 of the IBC, NCLAT serves as the appellate
tribunal. The Principal Bench in New Delhi and the Chennai Bench are the two NCLAT tribunals that are currently in
operation.
Section 64 of the insolvency and Bankruptcy Code, 2016 provides that where an application is not disposed of or order
is not passed within the timelines specified under the Code, then NCLT/NCLAT (as the case may be), shall record the
reasons for not doing so within the period so specified and the President of NCLT or Chairperson of NCLAT, as the case
may be after taking into account the reasons so recorded, extend the period specified in the Insolvency and Bankruptcy
Code, 2016 but not exceeding ten days.
No injunction shall be granted by any court, tribunal or authority in respect of any action taken, or to be taken, in
pursuance of any power conferred on the NCLT/NCLAT under this Code.

CIVIL COURT NOT TO HAVE JURISDICTION

Section 63 of the Insolvency and Bankruptcy Code, 2016 provides that no civil court or authority shall have
jurisdiction to entertain any suit or proceedings in respect of any matter on which NCLT/NCLAT has jurisdiction
under this Code.

FRAUDULENT OR MALICIOUS INITIATION OF PROCEEDINGS

Section 65 of the Insolvency and Bankruptcy Code, 2016 provides that if any person initiates the insolvency resolution
process or liquidation proceedings fraudulently or with malicious intent for any purpose other than for the resolution
of insolvency, or liquidation, as the case may be, AA may impose upon a such person a penalty which shall not be less
than One Lakh Rupees, but may extend to One Crore Rupees.
Whereas, if any person initiates voluntary liquidation proceedings with the intent to defraud any person, AA may
impose upon such person a penalty which shall not be less than One Lakh Rupees, but may extend to One Crore
Rupees.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

In M/s. Unigreen Global Private limited v. Punjab National Bank and others , Corporate debtor filed an application
under section 10 of the Code for initiation of CIRP on the ground that it had failed to pay debt due to financial creditors
and other creditors. Bank alleged suppression of facts on the ground that the corporate debtor had not disclosed full
facts and had not furnished full particulars in relation to assets mortgaged or securities furnished to the financial
creditors. Therefore, Adjudicating Authority rejected the application and imposed penalty on the corporate debtor.
Corporate debtor filed an appeal with NCLAT against the order.

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 LESSON 13 - ADJUDICATION AND APPEALS FOR CORPORATE PERSONS

NCLAT held that Section 10 of the Code does not empower the adjudicating authority to go beyond the records as
prescribed under Section 10 and the information as required to be submitted by a corporate debtor in Form 6 of the
NCLT Rules, 2016 subject to ineligibility, if any, as prescribed under Section 11 of the Code. Section 11 of the Code
prescribes conditions which make an applicant ineligible/disqualified to make an application under the Code to initiate
corporate insolvency resolution process. as per the judgment of NCLAT an applicant does not require to disclose or
plead any fact which is unrelated or beyond the requirements of the Code or forms prescribed under the NCLT Rules,
2016 and thus non-disclosure of such facts cannot be termed as suppression of facts by a corporate debtor.
In case of Monotrone Leasing Pvt. Ltd. Vs. PM Cold Storage Pvt. Ltd. [CA (AT) (Ins.) No. 99 of 2020], NCLAT order dt.
16.07.2020, it was held that though section 65 provides for penal action against initiating CIRP with a fraudulent or
malicious intent, the same cannot be construed to mean that if an application is filed under section 7, 9 or 10 of the
Code without any malicious or fraudulent intent, then also such a petition can be rejected by the AA on the ground
that the intent of the applicant was not resolution.
In Amit Katyal Vs. Meera Ahuja & Ors. [CA (AT) (Ins.) No. 1380 of 2019] NCLAT order dt. 09.11.2020 it wasz stated
that

i. In case an allottee does not want to go ahead with its obligation to take possession of the flat, but wants to get
back the monies already paid, by way of coercive measure, the use of section 65 is justified, as one allottee is
misusing his position to stall the entire project. But it does not mean that an application satisfying the
requirements of section 7 or 9 could be dismissed arbitrarily under the guise of section 65.
The Code provides stringent action under section 65 against the person who initiates proceeding fraudulently or with
malicious intent, for the purpose other than the resolution of insolvency or liquidation

FRAUDULENT TRADING OR WRONGFUL TRADING

Section 66 of the Insolvency and Bankruptcy Code, 2016 provides that if during corporate insolvency resolution process
or a liquidation process, it is found that any business of the corporate debtor has been carried on with intent to defraud
creditors of the corporate debtor or for any fraudulent purpose, then AA may on the application of the resolution
professional pass an order that any persons who were knowingly parties to the carrying on of the business in such
manner shall be liable to make such contributions to the assets of the corporate debtor as it may deem fit.
On an application made by a resolution professional during the corporate insolvency resolution process, the
adjudicating authority may by an order direct that a director or partner of the corporate debtor, as the case may be,
shall be liable to make such contribution to the
assets of the corporate debtor as it may deem fit, if:
(a) before the insolvency commencement date, such director or partner knew or ought to have known that the there
was no reasonable prospect of avoiding the commencement of a corporate insolvency resolution process in
respect of such corporate debtor; and
(b) such director or partner did not exercise due diligence in minimising the potential loss to the creditors of the
corporate debtor.
Notwithstanding anything contained in this section, no application shall be filed by a resolution professional under
sub-section (2), in respect of such default against which initiation of corporate insolvency resolution process is
suspended as per section 10A. [Inserted vide the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020]
Explanation – For the purposes of this Section a director or partner of the corporate debtor (as the case may be)
shall be deemed to have exercised due diligence if such diligence was reasonably expected of a person carrying
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SHUBHAMM SUKHLECHA (CA, CS, LLM)

out the same functions as are carried out by such director or partner, as the case may be, in relation to the
corporate debtor.

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 LESSON 13 - ADJUDICATION AND APPEALS FOR CORPORATE PERSONS

PROCEEDING UNDER SECTION 66

Section 67 of the Insolvency and Bankruptcy Code, 2016 provides that where the Adjudicating Authority passes an
order under sub-section (1) or subsection (2) of section 66, as the case may be, it may give such further directions as
it may deem appropriate for giving effect to the order, and in particular, the Adjudicating Authority may:
a. provide for the liability of any person under the order to be a charge on any debt or obligation due from the
corporate debtor to him, or on any mortgage or charge or any interest in a mortgage or charge on assets of
the corporate debtor held by or vested in him, or any person on his behalf, or any person claiming as assignee
from or through the person liable or any person acting on his behalf; and
b. from time to time, make such further directions as may be necessary for enforcing any charge imposed under
this section.

Explanation – For the purposes of this section, “assignee” includes a person to whom or in whose favour, by the
directions of the person held liable under clause (a) the debt, obligation, mortgage or charge was created, issued or
transferred or the interest created, but does not include an assignee for valuable consideration given in good faith and
without notice of any of the grounds on which the declaration has been made.
Also, where the Adjudicating Authority has passed an order under sub-section (1) or (2) of section 66, as the case may
be, in relation to a person who is a creditor of the corporate debtor, it may, by an order, direct that the whole or any
part of any debt owed by the corporate debtor to that person and any interest thereon shall rank in the order of
priority of payment under section 53 after all other debts owed by the corporate debtor.

What action can be taken for fraudulent trading or wrongful trading?

As per Section 66 of the Code, If during the corporate insolvency resolution process or a liquidation process, it is found
that any business of the corporate debtor has been carried on with intent to defraud creditors of the corporate debtor
or for any fraudulent purpose, the Adjudicating Authority may on the application of the resolution professional pass
an order that any persons who were knowingly parties to the carrying on of the business in such manner shall be liable
to make such contributions to the assets of the corporate debtor as it may deem fit.

In case of, Axis Bank Ltd. vs. Anuj Jain [CA (AT) (Ins.) No. 243 of 2018 and Ors.] NCLAT order dt. 01.08.2019, the AA
had allowed the application under sections 66, 43 and 45 of the Code and ordered that the mortgaged properties be
vested with the CD. On appeal, the NCLAT noted that the mortgages were made in favour of the banks and financial
institutions by the CD in the ordinary course of business. Further, in absence of any contrary evidence to show that
they were made to defraud the creditors of the CD or for any fraudulent purpose, it set aside the order of the AA.

FRAUDULENT MANAGEMENT OF CORPORATE DEBTOR DURING PRE-PACKAGED INSOLVENCY RESOLUTION PROCESS

Section 67A of the Insolvency and Bankruptcy Code, 2016 inserted by way of the Insolvency and Bankruptcy Code
(Amendment) Ordinance, 2021 provides that when an officer of the corporate debtor manages its affairs with the
intent to defraud the corporate debtor’s creditors or for any other fraudulent purpose on or after the pre-packaged
insolvency commencement date, AA may upon application by the resolution professional, pass an order imposing
upon any such officer a penalty that shall not be less than one lakh rupees but may extend to one crore rupees.

THE INSOLVENCY AND BANKRUPTCY (APPLICATION TO ADJUDICATING AUTHORITY) RULES, 2016

These rules were made by Central Government in exercise of the powers conferred by clauses (c), (d), (e) and (f ) of
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

sub-section (1) of Section 239 read with Sections 7, 8, 9 and 10 of the Insolvency and Bankruptcy Code, 2016 to be
effective from 1st December 2016. These Rules shall apply to matters relating to the corporate insolvency resolution
process. Some of the provisions of the said rules are discussed below:

Definitions
In these Rules, unless the context otherwise requires,

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 LESSON 13 - ADJUDICATION AND APPEALS FOR CORPORATE PERSONS

(a) “Corporate insolvency resolution process” means the insolvency resolution process for corporate persons
under Chapter II of Part II of the Code;
(b) “Credit Information Company” shall have the meaning as assigned to it under the Credit information
Companies (Regulation) Act, 2005;
(c) “financial contract” means a contract between a corporate debtor and a financial creditor setting out the terms
of the financial debt, including the tenure of the debt, interest payable and date of repayment;
(d) “Identification number” means the limited liability partnership identification number or the corporate identity
number, as the case may be, of the corporate person.

Application by financial creditor (Rule 4)

1. A financial creditor, either by itself or jointly, shall make an application for initiating the corporate insolvency
resolution process against a corporate debtor under section 7 of the Code in Form 1, accompanied with
documents and records required therein and as specified in the Insolvency and Bankruptcy Board of India
Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
2. Where the applicant under sub-rule (1) is an assignee or transferee of a financial contract, the application shall be
accompanied with a copy of the assignment or transfer agreement and other relevant documentation to
demonstrate the assignment or transfer.
3. The applicant shall dispatch forthwith, a copy of the application filed with the Adjudicating Authority, by registered
post or speed post to the registered office of the corporate debtor.
4. In case the application is made jointly by financial creditors, they may nominate one amongst them to act on their
behalf.

In the matter of Dena Bank (now Bank of Baroda) Vs. C. Shivakumar Reddy and Anr., Supreme Court held that since
a Financial Creditor is required to apply under Section 7 of the Code in Form 1, the Financial Creditor can only fill in
particulars as specified in the various columns of the Form. There is no scope for elaborate pleadings. An application
to the Adjudicating Authority under Section 7 of the Code in the prescribed form, cannot therefore, be compared with
the plaint in a suit.
Supreme Court also held that an application under Section 7 of the Code would not be barred by limitation on the
ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the
Corporate Debtor as Non-Performing Asset, if there were an acknowledgement of the debt by the Corporate Debtor
before expiry of the period of limitation of three years, in which case the period of limitation would get extended by
a further period of three years.

What are the forms to be used for Application to be filed before National Company Law Tribunal (NCLT)by Financial
Creditor, Operational Creditor and Financial Debtor?
The form in which the application is to be preferred is provided in the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016 as follows:
 Financial Creditor – Form 1
 Operational Creditor – Form 5
 Corporate Applicant – Form 6
What is the process for making an application by financial creditor?
As per Rule 4 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, a financial creditor,
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

either by itself or jointly, shall make an application for initiating the corporate insolvency resolution process against
a corporate debtor under section 7 of the Code in Form 1, accompanied with documents and records required
therein and as specified in the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The
applicant shall serve a copy of the application to the registered office of the corporate debtor and to the Board, by
registered post or speed post or by hand or by electronic means, before filing with the Adjudicating Authority. In

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 LESSON 13 - ADJUDICATION AND APPEALS FOR CORPORATE PERSONS

case the application is made jointly by financial creditors, they may nominate one amongst them to act on their
behalf.

Demand notice by operational creditor (Rule 5)

1. An operational creditor shall deliver to the corporate debtor, the following documents, namely.-
a. a demand notice in Form 3; or
b. a copy of an invoice attached with a notice in Form 4.
2. The demand notice or the copy of the invoice demanding payment referred to in sub- section (2) of section 8 of
the Code, may be delivered to the corporate debtor,
a. at the registered office by hand, registered post or speed post with acknowledgement due; or
b. by electronic mail service to a whole time director or designated partner or key managerial personnel, if any,
of the corporate debtor.
3. A copy of demand notice or invoice demanding payment served under this rule by an operational creditor shall
also be filed with an information utility, if any.

What is the process for making an application by financial creditor?

As per Rule 4 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, a financial creditor,
either by itself or jointly, shall make an application for initiating the corporate insolvency resolution process against
a corporate debtor under section 7 of the Code in Form 1, accompanied with documents and records required
therein and as specified in the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The
applicant shall serve a copy of the application to the registered office of the corporate debtor and to the Board, by
registered post or speed post or by hand or by electronic means, before filing with the Adjudicating Authority. In
case the application is made jointly by financial creditors, they may nominate one amongst them to act on their
behalf.

What is meant by a Demand Notice? Can a Demand Notice by an operational creditor be issued inany form?
Demand Notice means a notice served by an operational creditor to the corporate debtor demanding payment of
the operational debt in respect of which the default has occurred. No, the Demand Notice has to be issued in Form
No. 3 or a copy of an invoice attached with a notice in Form 4 as provided in the Insolvency and Bankruptcy
(Application to Adjudicating Authority) Rules, 2016.

Application by operational creditor (Rule 6)

1. An operational creditor, shall make an application for initiating the corporate insolvency resolution process
against a corporate debtor under section 9 of the Code in Form 5, accompanied with documents and records
required therein and as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process
for Corporate Persons) Regulations, 2016.
2. The applicant under sub-rule (1) shall dispatch forthwith, a copy of the application filed with the Adjudicating
Authority, by registered post or speed post to the registered office of the corporate debtor.
What is the process for making an application by Operational creditor?
An operational creditor shall make an application for initiating the corporate insolvency resolution process against
a corporate debtor under section 9 of the Code in Form 5, accompanied with documents and records required
therein and as specified in the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The
applicant shall serve a copy of the application to the registered office of the corporate debtor and to the Board, by
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

registered post or speed post or by hand or by electronic means, before filing with the Adjudicating Authority

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 LESSON 13 - ADJUDICATION AND APPEALS FOR CORPORATE PERSONS

In JK Jute Mill Mazdoor Morcha vs. Juggilal Kamlapat Jute Mills Company Ltd. & Ors. [Civil Appeal No. 20978 of 2017]
SC order dt. 30.04.2019 it was held that the trade union collectively represents its members who are workers, to whom
dues may be owed by the employer, which are debts owed for services rendered by each individual workman. If each
workman files a separate cause of action, the fact that a joint petition could be filed under rule 6 of AA Rules would
be ignored.

Application by corporate applicant (Rule 7)

1. A corporate applicant, shall make an application for initiating the corporate insolvency resolution process against
a corporate debtor under section 10 of the Code in Form 6, accompanied with documents and records required
therein and as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons) Regulations, 2016.
2. The applicant under sub-rule(1) shall dispatch forthwith, a copy of the application filed with the Adjudicating
Authority, by registered post or speed post to the registered office of the corporate debtor.

What is the process for making an application by corporate applicant?

A corporate applicant shall make an application for initiating the corporate insolvency resolution process against a
corporate debtor under section 10 of the Code in Form 6, accompanied with documents and records required
therein and as specified in the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Withdrawal of application (Rule 8)

The Adjudicating Authority may permit withdrawal of the application made under rules 4, 6 or 7, as the case may be,
on a request made by the applicant before its admission.
In case of, Lokhandwala Kataria Construction Pvt. Ltd. vs. Nisus Finance and Investment Managers LLP [Civil Appeal
no. 9279 of 2017] SC order dt. 24.07.2017 In the appeal before SC, a question as to whether, in view of rule 8 of the
AA Rules, the NCLAT could utilise the inherent power under rule 11 of the National Company Law Appellate Tribunal
Rules, 2016, to allow compromise before it by the parties after admission of the matter. The SC upheld the views of
NCLAT that after admission, inherent power could not be utilised. However, by using its power under Article 142 of
the Constitution, allowed the consent terms.

Interim resolution professional (Rule 9)

1. The applicant, wherever he is required to propose or proposes to appoint an insolvency resolution professional,
shall obtain a written communication in Form 2 from the insolvency professional for appointment as an interim
resolution professional and enclose it with the application made under rules 4, 6 or 7, as the case may be.
2. (2) The application under sub-rule (1) shall be accompanied by a certificate confirming the eligibility of the
proposed insolvency professional for appointment as a resolution professional in accordance with the Insolvency
and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Filing of application and application fee (Rule 10)

1. Till such time the rules of procedure for conduct of proceedings under the Code are notified, the application made
under subsection (1) of section 7, sub-section (1) of section 9 or sub-section (1) of section 10 of the Code shall be
filed before the Adjudicating Authority in accordance with rules 20, 21, 22, 23, 24 and 26 of Part III of the National
Company Law Tribunal Rules, 2016.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

2. An applicant under these rules shall immediately after becoming aware, notify the Adjudicating Authority of any
winding-up petition presented against the corporate debtor.
3. The application shall be accompanied by such fee as specified in the Schedule.
4. The application and accompanying documents shall be filed in electronic form, as and when such facility is made
available and as prescribed by the Adjudicating Authority:

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 LESSON 13 - ADJUDICATION AND APPEALS FOR CORPORATE PERSONS

Provided that till such facility is made available, the applicant may submit the accompanying documents, and wherever
they are bulky, in electronic form, 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.

The Government amended the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 on 14th
March, 2019 to modify the forms to enable application for initiation of fast track CIRP and to require submission of
details of the Corporate Debtor relevant for determination if fast track is available for its resolution.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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 LESSON 14 - INSOLVENCY RESOLUTION OF INDIVIDUAL AND PARTNERSHIP FIRMS

LESSON 14 - INSOLVENCY RESOLUTION OF INDIVIDUAL AND PARTNERSHIP FIRMS

REGULATORY FRAMEWORK
⮞ Section 94 to 120 of Insolvency and Bankruptcy Code, 2016

INTRODUCTION
The Insolvency and Bankruptcy Code, 2016 (the Code) aims to consolidate and amend laws relating to re organization
and insolvency resolution of corporate persons, partnership firms and individuals in India. The provisions of the Code
aim to maximize the value of assets of such persons in order to promote entrepreneurship in the country and also
increase the availability of credit in the economy and balance interest of all stakeholders.

Sections 94 to 120 in Chapter III of Part III of the Insolvency and Bankruptcy Code, 2016 deal with insolvency resolution
process for individuals and Partnership Firms.
Application by debtor to initiate Insolvency Resolution Process
Section 94 of the Code provides that the debtor who commits a default may apply to the adjudicating authority for
initiating the insolvency resolution process by submitting an application with such fee and in such form as may be
prescribed, either personally or through a Resolution Professional. Where the debtor is a partner of a firm, such
debtor shall not apply to the Adjudicating Authority for initiating the insolvency resolution process in respect of the
firm unless all or a majority of the partners of the firm file the application jointly.
Application for initiating the insolvency resolution process shall be submitted only in respect of debts which are not
excluded debts.

This lesson envisages how debtor or creditor either on their own or through Resolution Professional can initiate
insolvency resolution process, role of a Resolution Professional and issuance of discharge order by Adjudicating
Authority and effect upon the declaration of interim moratorium and moratorium by adjudicating authority. The
adjudicating authority for dealing with insolvency and bankruptcy of individual and partnership firms is Debt Recovery
Tribunal and Appellate Authority for the same is Debt Recovery. Appellate Tribunal. However, where a corporate
insolvency resolution process or liquidation proceeding of corporate debtor is pending before National Company Law
Tribunal, an application relating to the insolvency resolution or liquidation or bankruptcy of a personal guarantor of
such corporate debtor shall be filed before such National Company Law Tribunal.
Excluded debt means:
 liability to pay fine imposed by a court or Tribunal;
 liability to pay damages for negligence, nuisance or breach of a statutory, contractual or other legal
obligation;
 liability to pay maintenance to any person under any law for the time being in force;
 liability in relation to a student loan; and
 any other debt as may be prescribed.

Under this Section a debtor can make application for initiating the insolvency resolution process only if he is not:

(a) an undischarged bankrupt;

INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

(b) undergoing a fresh start process;

(c) undergoing an insolvency resolution process; or

(d) undergoing a bankruptcy process.

A debtor shall not be eligible to apply for insolvency resolution process if an application regarding insolvency resolution

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 LESSON 14 - INSOLVENCY RESOLUTION OF INDIVIDUAL AND PARTNERSHIP FIRMS

process has been admitted in respect of the debtor during the period of twelve months preceding the date of
submission of the application under this Section.
APPLICATION BY CREDITOR TO INITIATE INSOLVENCY RESOLUTION PROCESS
Section 95 of the Code provides that a creditor may apply to the Adjudicating Authority for initiating the insolvency
resolution process by submitting an application with such fee and in such form as may be prescribed, either by himself
or jointly with other creditors or through a Resolution Professional. A creditor may apply under this Section in relation
to any partnership debt owed to him for initiating an insolvency resolution process against any one or more partners
of the firm or the firm.
Where an application has been made against one partner in a firm, any other application against another partner in
the same firm shall be presented in or transferred to the Adjudicating Authority in which the first mentioned
application is pending for adjudication and such adjudicating authority may give such directions for consolidating the
proceedings under the applications as it thinks just.

An application under Section 95 shall be accompanied with such details and documents as may be specified by the
Board relating to:
a) the debts owed by the debtor to the b) the failure by the debtor to pay the c) relevant evidence of such
creditor or creditors submitting the debt within a period of fourteen days default or non-repayment of debt.
application for insolvency resolution of the service of the notice of demand;
process as on the date of application; and
The creditor shall also provide a copy of the application made under this Section to the debtor.

INTERIM MORATORIUM
Section 96 of the Code provides that when an application for initiating the insolvency resolution process is filed under
Section 94 or Section 95 of the Code, then an interim-moratorium shall commence on the date of the application in
relation to all the debts and shall cease to have effect on the date of admission of such application.

Where the application for initiating the insolvency resolution process has been made in relation to a firm, the interim
moratorium shall operate against all the partners of the firm as on the date of the application. The provisions of this
Section shall not apply to such transactions as may be notified by the Central Government in consultation with any
financial sector regulator.

During the interim moratorium period any pending legal action or proceeding in respect of any debt shall be deemed
to have been stayed and the creditors of the debtor shall not initiate any legal action or proceedings in respect of
any debt.

APPOINTMENT OF RESOLUTION PROFESSIONAL

Section 97 of the Code provides that if an application under Section 94 or 95 is filed through a Resolution Professional,
the Adjudicating Authority shall direct the Insolvency and Bankruptcy Board of India within seven days of the date of
the application to confirm that there are no disciplinary proceedings pending against the resolution Professional. The
Insolvency and Bankruptcy Board of India shall within seven days from the date of receipt of directions from
Adjudicating Authority; communicate to the Adjudicating Authority in writing either confirming the appointment of
the Resolution Professional or rejecting the appointment of the Resolution Professional and nominating another
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

Resolution Professional for the insolvency resolution process.

Where an application for initiating the insolvency resolution process under Section 94 or 95 of the Code, is filed by the
debtor or the creditor himself (as the case may be) and not through the Resolution Professional, the Adjudicating
Authority shall direct the Insolvency and Bankruptcy Board of India within seven days of the filing of such application,
to nominate a Resolution Professional for the insolvency resolution process.

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 LESSON 14 - INSOLVENCY RESOLUTION OF INDIVIDUAL AND PARTNERSHIP FIRMS

The Insolvency and Bankruptcy Board of India shall nominate a Resolution Professional within ten days of receiving
the direction from the adjudicating authority. The Adjudicating Authority shall by an order appoint the resolution
Professional recommended or as nominated by the Insolvency and Bankruptcy Board of India. The Resolution
Professional appointed by the Adjudicating Authority shall be provided a copy of the application for insolvency
resolution process.

REPLACEMENT OF RESOLUTION PROFESSIONAL

Section 98 of the Code provides that where the debtor or the creditor is of the opinion that the Resolution Professional
appointed under Section 97 of the Code, is required to be replaced, the debtor or creditor (as the case may be) may
apply to the adjudicating authority for the replacement of such Resolution Professional.
The Adjudicating Authority shall within seven days from the date of receipt of the application with regard to the
replacement of Resolution Professional shall make a reference to the Insolvency and Bankruptcy Board of India for
replacement of the Resolution Professional. The Insolvency and Bankruptcy Board of India shall within ten days from
the date of receipt of the reference from the Adjudicating Authority, shall recommend the name of the Resolution
Professional to the adjudicating authority against whom no disciplinary proceedings are pending.
Without prejudice to the provisions contained in this Section, the creditors may apply to the Adjudicating Authority
for replacement of the Resolution Professional where it has been decided in the meeting of the creditors to replace
the Resolution Professional with a new Resolution Professional for implementation of the repayment plan.
Where the Adjudicating Authority admits an application with regard to the replacement of the Resolution Professional,
it shall direct the Insolvency and Bankruptcy Board of India to confirm that there are no disciplinary proceedings
pending against the proposed resolution Professional. The Insolvency and Bankruptcy Board of India shall send a
communication within ten days from the date of receipt of the direction from Adjudicating Authority either confirming
the appointment of the nominated Resolution Professional or rejecting the appointment of the nominated Resolution
Professional and recommend a new Resolution Professional.
On the basis of the communication of the Insolvency and Bankruptcy Board of India, the Adjudicating Authority shall
pass an order appointing a new Resolution Professional and the Adjudicating Authority may give directions to the
replaced Resolution Professional to share all information with the new Resolution Professional in respect of the
insolvency resolution process and also to co-operate with the new Resolution Professional in such matters as may be
required.

SUBMISSION OF REPORT BY RESOLUTION PROFESSIONAL

Section 99 of the Code provides that the Resolution Professional shall examine the application under Section 94or
Section 95 (as the case may be) within ten days from the date of the appointment and submit a report to the
adjudicating authority recommending for approval or rejection of the application with regard to the initiation of
insolvency resolution process.
Where the application has been filed under Section 95, the Resolution Professional may require the debtor to prove
repayment of the debt claimed as unpaid by the creditor by furnishing:
(a) evidence of electronic transfer of the unpaid amount from the bank account of the debtor;
(b) evidence of encashment of a cheque issued by the debtor; or
(c) a signed acknowledgment by the creditor accepting receipt of dues.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

Where the debt for which an application has been filed by a creditor is registered with the information utility, the
debtor shall not be entitled to dispute the validity of such debt.
For the purposes of examining the application with regard to the initiation of insolvency resolution process, the
Resolution Professional may seek such further information or explanation in connection with the application as may
be required from the debtor or the creditor or any other person who in the opinion of the Resolution Professional may

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 LESSON 14 - INSOLVENCY RESOLUTION OF INDIVIDUAL AND PARTNERSHIP FIRMS

provide such information.

The person from whom such information or explanation is sought shall furnish such information or explanation within
seven days from the date of receipt of the request from Resolution Professional. The Resolution Professional shall
examine the application and ascertain that:
(a) The application satisfies the requirements prescribed under Section 94 or 95 and

(b) The applicant has provided information and given explanation sought by the Resolution Professional.
After examination of the application, Resolution Professional may recommend the acceptance or rejection of the
application in his report. Where the Resolution Professional finds that the debtor is eligible for a fresh start process
(Section 81 to 93 of the Code), the Resolution Professional shall submit a report recommending that the application
by the debtor under Section 94 of the Code, be treated as an application under Section 81 of the Code, by the
Adjudicating Authority.
The Resolution Professional shall record the reasons for recommending the acceptance or rejection of the application
in the report and shall give a copy of the report to the debtor or the creditor (as the case may be).

ADMISSION OR REJECTION OF THE APPLICATION

Section 100 of the Code provides that the Adjudicating Authority shall within fourteen days from the date of
submission of the report by Resolution Professional under Section 99 of the Code; pass an order either admitting or
rejecting the application under Section 94 or Section 95 as the case may be.
Where the Adjudicating Authority admits an application for initiation of the insolvency resolution process on the
request of the Resolution Professional then Adjudicating Authority shall issue instructions for the purpose of
conducting negotiations between the debtor and creditors and for arriving at a repayment plan. The Adjudicating
Authority shall provide a copy of the order passed along with the report of the Resolution Professional and the
application referred under Section 94 or Section 95 of the Insolvency and Bankruptcy Code, 2016 (as the case may be),
to the creditors within seven days from the date of passing the said order.
If the application referred under Section 94 or Section 95 of the Insolvency and Bankruptcy Code, 2016 (as the case
may be), is rejected by the Adjudicating Authority on the basis of report submitted by the Resolution Professional or
that the application was made with the intention to defraud his creditors or the Resolution Professional, the order
passed by Adjudicating Authority shall record that the creditor is entitled to file for the Bankruptcy Order under Section
121 to 148 of the Code.

MORATORIUM
Section 101 of the Code provides that when the application for initiating insolvency resolution process is admitted
under Section 100 of the Code; a moratorium shall commence in relation to all the debts and shall cease to have effect
at the end of the period of one hundred and eighty days beginning with the date of admission of the application or on
the date the Adjudicating Authority passes an order on the repayment plan under Section 114 of the Code, whichever
is earlier.
During the moratorium period:
a) any pending legal action or proceeding in respect of any debt shall be deemed to have been stayed;
b) the creditors shall not initiate any legal action or legal proceedings in respect of any debt; and
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

c) the debtor shall not transfer, alienate, encumber or dispose of any of the assets or his legal right or beneficial interest
therein.
Where an order admitting the application for initiating insolvency resolution process under Section 96 of the Code has
been made in relation to a firm, the moratorium shall operate against all the partners of the firm. The provisions of
this Section shall not apply to such transactions as may be notified by the Central Government in consultation with
any financial sector regulator.

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 LESSON 14 - INSOLVENCY RESOLUTION OF INDIVIDUAL AND PARTNERSHIP FIRMS

PUBLIC NOTICE AND CLAIMS FROM CREDITORS

Section 102 of the Code provides that the adjudicating authority shall issue a public notice within seven days of passing
the order under Section 100 of the Code, for inviting claims from all creditors within twenty one days from the date of
issue of notice.
The notice issued by Adjudicating Authority for inviting claims from the creditors shall include:
(a) details of the order admitting the application;
(b) particulars of the Resolution Professional with whom the claims are to be registered; and

(c) the last date for submission of claims.

The notice issued by adjudicating authority for inviting claims:
 shall be published in at least one English and one vernacular newspaper which is in circulation in the state
where the debtor resides;
 shall be affixed in the premises of the Adjudicating Authority and;

 should be placed on the website of the Adjudicating Authority.

Registering of claims by creditors

Section 103 of the Code provides that the creditors shall register claims with the Resolution Professional by sending
details of the claims by way of electronic communications or through courier, speed post or registered letter. The
creditor shall also provide to the Resolution Professional, personal information and such particulars as may be
prescribed.

PREPARATION OF LIST OF CREDITORS

Section 104 of the Code provides that the Resolution Professional shall within thirty days from date of issue of public
notice prepare a list of creditors on the basis of the:
(a) information disclosed in the application filed under Section 94 or 95 of the Code as the case may be;
(b) claims received by the Resolution Professional under Section 102 of the Code.

REPAYMENT PLAN
Section 105 of the Code provides that the debtor shall in consultation with the Resolution Professional prepare a
repayment plan containing a proposal to the creditors for restructuring of the debts or affairs of the concerned debtor.
The repayment plan may authorize or require the Resolution Professional to:
(a) carry on the debtor’s business or trade on his behalf or in his name; or

(b) realize the assets of the debtor; or

(c) administer or dispose of any funds of the debtor.
The repayment plan shall include the justification for preparation of such repayment plan and reasons on the basis of
which the creditors may agree upon the plan; provision for payment of fee to the Resolution Professional and such
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

other matters as may be specified.

REPORT OF RESOLUTION PROFESSIONAL ON REPAYMENT PLAN

Section 106 of the Code provides that the Resolution Professional shall submit the repayment plan along with the
report on such plan to the Adjudicating Authority within a period of twenty one days from the last date of submission
of claims under Section 102 of the Code.

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 LESSON 14 - INSOLVENCY RESOLUTION OF INDIVIDUAL AND PARTNERSHIP FIRMS

b) the repayment
plan has a
reasonable
prospect of being
approved and
implemented;
and
a) the c) there is a
repayment plan necessity of
is in The report of the summoning a
Resolution meeting of the
compliance with Professional on
the provisions of creditors, if
repayment plan required, to
any law for the shall include
time being in consider the
that: repayment plan.
force;

Provided that where the Resolution Professional recommends that a meeting of the creditors is not required to be
summoned, reasons for the same shall be provided.
The report of the Resolution Professional on repayment plan shall also specify the date, time and place where the
meeting should be held if in the opinion of Resolution Professional meeting of the creditors should be summoned. The
date on which the meeting is to be held shall be not less than fourteen days and not more than twenty- eight days
from the date of submission of report by the Resolution Professional and Resolution Professional shall consider the
convenience of creditors in fixing the date and venue of the meeting of the creditors.

SUMMONING OF MEETING OF CREDITORS

Section 107 of the Code provides that the Resolution Professional shall issue a notice calling the meeting of the
creditors at least fourteen days before the date fixed for such meeting. The Resolution Professional shall send the
notice of the meeting to the list of creditors prepared under Section 104 of the Code.
The notice shall state the address of the Adjudicating Authority to which the repayment plan and report of the
Resolution Professional on the repayment plan has been submitted and shall be accompanied by:
(a) copy of the repayment plan;
(b) copy of the statement of affairs of the debtor;
(c) copy of the said report of the Resolution Professional; and
(d) forms for proxy voting.
The proxy voting, including electronic proxy voting shall take place in such manner and form as may be specified.
CONDUCT OF MEETING OF CREDITORS
Section 108 provides that in the meeting of the creditors, the creditors may decide to approve, modify or reject the
INSOLVENCY AND BANKRUPTCY LAW

repayment plan. The Resolution Professional shall ensure that if modifications are suggested by the creditors,
SHUBHAMM SUKHLECHA (CA, CS, LLM)

consent of the debtor shall be obtained for each modification. The Resolution Professional may for a sufficient cause
adjourn the meeting of the creditors for a period of not more than seven days at a time.

VOTING RIGHTS IN MEETING OF CREDITORS

Section 109 of the Code provides that a creditor shall be entitled to vote at every meeting of the creditors in respect

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 LESSON 14 - INSOLVENCY RESOLUTION OF INDIVIDUAL AND PARTNERSHIP FIRMS

of the repayment plan in accordance with voting share assigned to him. The Resolution Professional shall determine
voting share to be assigned to each creditor in the manners specified by the Insolvency and Bankruptcy Board of India.
A creditor shall not be entitled to vote in respect of a debt for an unliquidated amount. A creditor shall not be entitled
to vote in a meeting of the creditors if the name of creditor is not mentioned in the list of creditors prepared under
Section 104 of the Code, or creditor is an associate of the debtor.
RIGHTS OF SECURED CREDITORS IN RELATION TO REPAYMENT PLAN
Section 110 of the Code provides that the secured creditors shall be entitled to participate and vote in the meetings
of the creditors. A secured creditor participating in the meetings of the creditors and voting in relation to the
repayment plan shall forfeit his right to enforce the security during the period of the repayment plan in accordance
with the terms of the repayment plan. “Period of the repayment plan” means the period from the date of the order
of Adjudicating Authority approving resolution plan till the date on which the notice is given by the resolution
professional on completion of resolution plan or premature end of resolution plan, as the case may be. Where a
secured creditor does not forfeit his right to enforce security, such secured creditor shall submit an affidavit to the
resolution professional at the meeting of the creditors stating:
(a) that the right to vote exercised by the secured creditor is only in respect of the unsecured part of the debt; and
(b) the estimated value of the unsecured part of the debt.
In case a secured creditor participates in the voting on the repayment plan by submitting an affidavit, the secured and
unsecured parts of the debt shall be treated as separate debts.
The concurrence of the secured creditor shall be obtained if the creditor does not participate in the voting on
repayment plan but provision of the repayment plan affects his right to enforce security.

APPROVAL OF REPAYMENT PLAN BY CREDITORS

Section 111 of the Insolvency and Bankruptcy Code, 2016 provides that the repayment plan or any modification to the
repayment plan shall be approved by a majority of more than three-fourth in value of the creditors present in person
or by proxy and voting on the resolution in a meeting of the creditors.
Report of meeting of creditors on repayment plan

Section 112 of the Code provides that the Resolution Professional shall prepare a report of the meeting of the creditors
on repayment plan which shall contain:
a) whether the repayment b) the resolutions which c) list of the creditors who d) such other information
plan was approved or were proposed at the were present or as the resolution
rejected and if approved, meeting and the decision on represented at the meeting Professional thinks
the list the modifications, if such resolutions; and the voting records of appropriate to make known
any; each creditor for all to the Adjudicating
meetings of the creditors; Authority.
and

Notice of decisions taken at meeting of creditors

Section 113 of the Code provides that the Resolution Professional shall provide a copy of the report of the meeting of
creditors prepared under Section 99 of the Code, to the debtor, creditor (including those who were not present at the
meeting) and to the Adjudicating Authority.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

ORDER OF ADJUDICATING AUTHORITY ON REPAYMENT PLAN

Section 114 of the Code provides that the Adjudicating Authority shall by an order approve or reject the repayment
plan on the basis of the report of the meeting of the creditors submitted by the Resolution Professional under Section
112 of the Code.

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 LESSON 14 - INSOLVENCY RESOLUTION OF INDIVIDUAL AND PARTNERSHIP FIRMS

Provided that where a meeting of creditors is not summoned, the Adjudicating Authority shall pass an order on the
basis of the report prepared by the Resolution Professional under Section 106 of the Code.
The order of the Adjudicating Authority approving the repayment plan may also provide for directions for
implementing the repayment plan and where the Adjudicating Authority is of the opinion that the repayment plan
requires modification, it may direct the Resolution Professional to re-convene a meeting of the creditors for
reconsidering the repayment plan.
AUTHORITY ON REPAYMENT PLAN
Section 115 of the Code provides that where the Adjudicating Authority has approved the repayment plan under
Section 114 of the Insolvency and
Bankruptcy Code, 2016, the repayment plan shall take effect as if proposed by the debtor in the meeting; and shall be
binding on creditors mentioned in the repayment plan and on the debtor.
Where the Adjudicating Authority rejects the repayment plan under Section 114 of the Code, the debtor and the
creditors shall be entitled to file an application for bankruptcy under Section 121 to 148 of the of the Code.
A copy of the order passed by the Adjudicating Authority shall be provided to the Insolvency and Bankruptcy Board of
India for the purpose of recording an entry in the register referred under Section 196 of the Code.
Implementation and supervision of repayment plan
Section 116 of the Code provides that the Resolution Professional appointed under Section 97 or Section 98 of the
Code, shall supervise the implementation of the repayment plan. The resolution professional may apply to the
adjudicating authority for directions, if necessary, in relation to any particular matter arising under the repayment
plan and the Adjudicating Authority may issue directions as may be necessary in this regard.

COMPLETION OF REPAYMENT PLAN

Section 117 of the Code provides that the Resolution Professional shall within fourteen days from the date of the
completion of the repayment plan, forward to the persons who are bound by the repayment plan under Section 115
of the Code and the Adjudicating Authority, the following documents:
(a) notice that the repayment plan has been fully implemented; and
(b) a copy of a report by the resolution professional summarising all receipts and payments made in pursuance of
the repayment plan and extent of the implementation of such plan as compared with the repayment plan
approved by the meeting of the creditors.
The Resolution Professional may apply to the adjudicating authority to extend the time period for furnishing such
documents for the period not exceeding seven days.

REPAYMENT PLAN COMING TO END PREMATURELY

Section 118 of the Insolvency and Bankruptcy Code, 2016 provides that the repayment plan shall be deemed to have
come to an end prematurely if it has not been fully implemented in respect of all persons bound by it within the period
as mentioned in the repayment plan.
Where a repayment plan comes to an end prematurely, the Resolution Professional shall submit a report to the
adjudicating authority which shall state the following:
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SHUBHAMM SUKHLECHA (CA, CS, LLM)

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 LESSON 14 - INSOLVENCY RESOLUTION OF INDIVIDUAL AND PARTNERSHIP FIRMS

(a) Receipts and payments made in pursuance of the repayment plan;

(b) Reasons for premature end of the repayment plan; and

(c) Details of the creditors whose claims have not been fully satisfied.

The Adjudicating Authority shall pass an order on the basis of the report submitted by the Resolution Professional that
the repayment plan has not been completely implemented. The debtor or the creditor, whose claims under repayment
plan have not been fully satisfied shall be entitled to apply for a bankruptcy order. The Adjudicating Authority shall
forward to the persons bound by the repayment plan under Section 115 of the Code, a copy of the report submitted
by the Resolution Professional to it under this Section and the order passed by it under this Section.

The Adjudicating Authority shall forward a copy of the order passed under this Section to the Insolvency and
Bankruptcy Board of India, for the purpose of recording entries in the register referred to in Section 196 of the Code.

DISCHARGE ORDER
Section 119 of the Code provides that on the basis of the repayment plan, the Resolution Professional shall apply to
the Adjudicating Authority for a discharge order in relation to the debts mentioned in the repayment plan and the
Adjudicating Authority may pass such discharge order.
The repayment plan may provide for early discharge or for discharge on complete implementation of the repayment
plan.
The discharge order shall be forwarded to the Insolvency and Bankruptcy Board of India, for the purpose of recording
entries in the register referred to in Section 196 of the Code. The discharge order under shall not discharge any other
person from any liability in respect of his debt.

RECENT DEVELOPMENTS
Part III of the Code which applies to matters relating to fresh start, insolvency and bankruptcy of individuals and
partnership firms envisages insolvency resolution of three categories of individuals, namely, personal guarantors to
corporate debtors (CDs), partnership firms and proprietorship firms, and other individuals. Each category is unique
and needs a separate dispensation for resolution of its insolvency. An appropriate phasing and sequencing of
implementation of individual insolvency is essential, in sync with the legislative intention.
In the first phase, the provisions of the Code dealing with insolvency and bankruptcy of personal guarantors to
corporates have been implemented. This is to complement the corporate insolvency regime and put personal
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

guarantors and corporate guarantors on a level playing field. The provisions of the Code dealing with insolvency of
partnership and proprietorship firms may be implemented in the second phase. In the third phase, the provisions of
the Code dealing with insolvency of other individuals may be implemented. This would enable learnings from earlier
phases for design of the dispensation for subsequent phases and to have all stakeholders on board for the efficient
implementation of Part III of the Code.

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 LESSON 14 - INSOLVENCY RESOLUTION OF INDIVIDUAL AND PARTNERSHIP FIRMS

Standard of conduct Section 120 of the Code provides that the Resolution Professional shall perform his functions
and duties in compliance with the Code of Conduct provided under Section 208 of the Code.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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 LESSON 15 - BANKRUPTCY ORDER FOR INDIVIDUALS AND PARTNERSHIP FIRMS

LESSON 15 - BANKRUPTCY ORDER FOR INDIVIDUALS AND PARTNERSHIP FIRMS

REGULATORY FRAMEWORK
⮞ Section 121 to Section 148 of Insolvency and Bankruptcy Code, 2016

INTRODUCTION
Bankruptcy is a legal procedure to give relief for people whose circumstances are unlikely to change and who have no
hope of paying off their debts within a reasonable time. The term bankruptcy applies only to individuals and not to
the companies or other legal entities. An individual may be made bankrupt only by order passed by Adjudicating
Authority based on bankruptcy petition. Either creditor(s) or debtor may make application for bankruptcy.
Chapter IV of Part III of the Insolvency and Bankruptcy Code, 2016 (the Code) deals with the provisions of bankruptcy
order for individuals and partnership firms. This Chapter explains how, and under what circumstances, a debtor or
creditor can apply for the bankruptcy order.

The Adjudicating Authority for dealing with insolvency and bankruptcy of individual and partnership firm is Debt
Recovery Tribunal and Appellate Authority for the same is Debt Recovery Appellate Tribunal.
Application for Bankruptcy
Section 121 of the Code provides that an application for bankruptcy of a debtor may be made by a creditor
individually or jointly with other creditors or by a debtor to the adjudicating authority in such format and with such
fees as may be prescribed where an order has been passed by an Adjudicating Authority under Section 100(4) or
Section 115 (2) or 118(3) of the Code.

An application for bankruptcy shall be filed within a period of three months from the date of the order passed by
the Adjudicating Authority. Also, where the debtor is a firm, the application may be filed by any of its partners.

APPLICATION BY DEBTOR
Section 122 of the Code provides that an application for bankruptcy of a debtor shall be accompanied by:

a) the records of insolvency resolution process undertaken under Chapter III of Part III;

b) the statement of affairs of the debtor in such form and manner as may be prescribed, on the date of the application
for bankruptcy; and

c) a copy of the order passed by the Adjudicating Authority under Chapter III of Part III permitting the debtor to apply
for bankruptcy.

The debtor may propose an insolvency professional as the bankruptcy trustee in the application for bankruptcy. An
application for bankruptcy by the debtor shall not be withdrawn without the leave of the Adjudicating Authority.

APPLICATION BY CREDITOR
Section 123 of the Insolvency and Bankruptcy Code, 2016 provides that an application for bankruptcy by a creditor
shall be accompanied by:
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SHUBHAMM SUKHLECHA (CA, CS, LLM)

a) the records of insolvency resolution process undertaken under Chapter III of the Insolvency and Bankruptcy
Code, 2016;
b) a copy of the order passed by the Adjudicating Authority under Chapter III of the Insolvency and Bankruptcy
Code, 2016 permitting the creditor to apply for bankruptcy;
c) details of the debts owed by the debtor to the creditor as on the date of the application for bankruptcy; and

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 LESSON 15 - BANKRUPTCY ORDER FOR INDIVIDUALS AND PARTNERSHIP FIRMS

d) such other information as may be prescribed.

An application made in respect of a debt which is secured shall be accompanied with:
a) a statement by the creditor having the right to enforce the security that creditor shall in the event of a bankruptcy
order being made, give up his security for the benefit of all the creditors of the bankrupt; or
b) a statement by the creditor stating that the application for bankruptcy is only in respect of the unsecured part of
the debt and an estimated value of the unsecured part of the debt.

If a secured creditor makes an application for bankruptcy and submits a statement, the secured and unsecured parts
of the debt shall be treated as separate debts. The creditor may propose an insolvency professional as the bankruptcy
trustee in the application for bankruptcy.
An application for bankruptcy in case of a deceased debtor, may be filed against his legal representatives. The
application for bankruptcy shall be in such form and manner and accompanied by such fee as may be prescribed. An
application for bankruptcy by the creditor shall not be withdrawn without the permission of the Adjudicating
Authority.

EFFECT OF APPLICATION

Section 124 of the Code provides that when an application for bankruptcy is filed under Section 122
or Section 123 of the Code, then:

(a) interim-moratorium shall commence on the date of (b) during the interim-moratorium period any pending
the making of the application on all actions against legal action or legal proceeding against any property
the properties of the debtor in respect of his debts of the debtor in respect of any of his debts shall be
and such moratorium shall cease to have effect on deemed to have been stayed and the creditors of the
the bankruptcy commencement date; and debtor shall not be entitled to initiate any legal action
or legal proceedings against any property of the
debtor in respect of any of his debts.

Where the application has been made in relation to a firm, the interim moratorium shall operate against all the
partners of the firm as on the date of the making of the application. The provisions of this Section shall not apply to
such transactions as may be notified by the Central Government in consultation with any financial sector regulator.

APPOINTMENT OF INSOLVENCY PROFESSIONAL AS BANKRUPTCY TRUSTEE

Section 125 of the Code provides that if an insolvency professional is proposed as the bankruptcy trustee in the
application for bankruptcy under Section 122 or Section 123 of the Code, the Adjudicating Authority shall direct the
Insolvency and Bankruptcy Board of India within seven days of receiving the application for bankruptcy to confirm that
there are no disciplinary proceedings against such professional. The Insolvency and Bankruptcy Board of India shall
within ten days from the date of the receipt of the direction shall in writing either confirm the appointment of the
proposed insolvency professional as the bankruptcy trustee for the bankruptcy process; or reject the appointment of
the proposed insolvency professional as the bankruptcy trustee and nominate another bankruptcy trustee for the
bankruptcy process.

Where a bankruptcy trustee is not proposed by the debtor or creditor under Section 122 or Section 123, the
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

Adjudicating Authority shall direct the Insolvency and Bankruptcy Board of India within seven days of receiving the
application to nominate a bankruptcy trustee for the bankruptcy process. The Insolvency and Bankruptcy Board of
India shall nominate a bankruptcy trustee within ten days of receiving the direction from the Adjudicating Authority.
The bankruptcy trustee confirmed or nominated under this Section shall be appointed as the bankruptcy trustee by
the Adjudicating Authority in the bankruptcy order under Section 126 of the Insolvency and Bankruptcy Code, 2016.
Validity of bankruptcy order

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 LESSON 15 - BANKRUPTCY ORDER FOR INDIVIDUALS AND PARTNERSHIP FIRMS

Section 127 of the Code provides that the bankruptcy order passed by the Adjudicating Authority under Section 126
of the Code, shall continue to have effect till the debtor is discharged under Section 138 of the Code.

EFFECT OF BANKRUPTCY ORDER

Section 128 of the Code provides that on passing of the bankruptcy order under Section 126 of the Code:
(a) the estate of the bankrupt shall vest in the bankruptcy trustee as provided under Section 154 of the Code;
(b) the estate of the bankrupt shall be divided among his creditors;

(c) a creditor of the bankrupt indebted in respect of any debt claimed as a bankruptcy debt shall not:

(i) initiate any action against the property of the bankrupt in respect of such debt; or

(ii) commence any suit or other legal proceedings except with the leave of the adjudicating authority and on
such terms as the adjudicating authority may impose.

Subject to the provisions of Section 123 of the Code, the bankruptcy order shall not affect the right of any secured
creditor to realize or otherwise deal with his security interest in the same manner as he would have been entitled if
the bankruptcy order had not been passed:
Provided that no secured creditor shall be entitled to any interest in respect of his debt after the bankruptcy
commencement date if he does not take any action to realise his security within thirty days from the said date. Where
a bankruptcy order under Section 126 of the Code has been passed against a firm, the order shall operate as if it were
a bankruptcy order made against each of the individuals who, on the date of the order, is a partner in the firm. The
provisions of this Section shall not apply to such transactions as may be notified by the Central Government in
consultation with any financial sector regulator.
Bankruptcy Order

Section 126 of the Code provides that the Adjudicating Authority shall pass a bankruptcy order within fourteen days
of receiving the confirmation or nomination of the bankruptcy trustee under Section 125 of the Code. The
adjudicating authority shall provide to the bankrupt, creditors and the bankruptcy trustee within seven days of the
passing of the bankruptcy order, namely a copy of the application for bankruptcy and a copy of the bankruptcy
order.

STATEMENT OF FINANCIAL POSITION

Section 129 of the Code provides that where a bankruptcy order is passed on the application for bankruptcy by a
creditor under Section 123 of the Code, the bankrupt shall submit his statement of financial position to the bankruptcy
trustee within seven days from the bankruptcy commencement date. The statement of financial position shall be
submitted in such form and manner as may be prescribed.
Where the bankrupt is a firm, its partners on the date of the order shall submit a joint statement of financial position
of the firm, and each partner of the firm shall submit a statement of his financial position. The bankruptcy trustee may
require the bankrupt or any other person to submit in writing further information explaining or modifying any matter
contained in the statement of financial position.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

PUBLIC NOTICE INVITING CLAIMS FROM CREDITORS

Section 130 of the Code provides that the adjudicating authority shall:
(a) send notices within ten days of the bankruptcy commencement date to the creditors mentioned in the
statement of affairs submitted by the bankrupt under Section 129 of the Code; or the application for
bankruptcy submitted by the bankrupt under Section 122 of the Code.

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 LESSON 15 - BANKRUPTCY ORDER FOR INDIVIDUALS AND PARTNERSHIP FIRMS

(b) issue a public notice inviting claims from creditors.

The public notice shall include the last date up to which the claims shall be submitted and such others matters and
details as may be prescribed and shall be published in leading newspapers, one in English and another in vernacular
having sufficient circulation where the bankrupt resides; affixed on the premises of the Adjudicating Authority; and
placed on the website of the Adjudicating Authority. The notice to the creditors shall include such matters and details
as may be prescribed.
Registration of claims
Section 131 of the Code provides that the creditors shall register claims with the bankruptcy trustee within seven
days of the publication of the public notice, by sending details of the claims to the bankruptcy trustee in such manner
as may be prescribed. The creditor in addition to the details of his claims shall provide such other information and
in such manner as may be prescribed.
Preparation of list of creditors
Section 132 of the Code provides that the bankruptcy trustee shall within fourteen days from the bankruptcy
commencement date prepare a list of creditors of the bankrupt on the basis of the information disclosed by the
bankrupt in the application for bankruptcy filed by the bankrupt under Section 118 of the Code and the statement
of affairs filed under Section 125 of the Code, and claims received by the bankruptcy trustee under sub- section (2)
of Section 130 of the Code.

SUMMONING OF MEETING OF CREDITORS

Section 133 of the Code provides that the bankruptcy trustee shall within twenty-one days from the bankruptcy
commencement date, issue a notice for calling a meeting of the creditors, to every creditor of the bankrupt as
mentioned in the list prepared under Section 132 of the Code.
The notices shall –
(a) state the date of the meeting of the creditors, which shall not be later than twenty-one days from the
bankruptcy commencement date;
(b) be accompanied with forms of proxy voting;
(c) specify the form and manner in which the proxy voting may take place.

The proxy voting including electronic proxy voting shall take place in such manner and form as may be specified.

CONDUCT OF MEETING OF CREDITORS

Section 134 of the Code provides that the bankruptcy trustee shall be the convener of the meeting of the creditors
summoned under Section 133 of the Code. The bankruptcy trustee shall decide the quorum for the meeting of the
creditors, and conduct the meeting only if the quorum is present.
The following business shall be conducted in the meeting of the creditors in which regard a resolution may be passed,
namely:
 the establishment of a committee of creditors;
 any other business that the bankruptcy trustee thinks fit to be transacted.

The bankruptcy trustee shall cause the minutes of the meeting of the creditors to be recorded, signed and retained as
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

a part of the records of the bankruptcy process. The bankruptcy trustee shall not adjourn the meeting of the creditors
for any purpose for more than seven days at a time.
Which creditors are not entitled to vote underSection 135 of the Code?
The following creditors shall not be entitled to vote under this Section, namely:
(a) creditors who are not mentioned in the list of creditors under Section 132 of the Code, and those who have

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 LESSON 15 - BANKRUPTCY ORDER FOR INDIVIDUALS AND PARTNERSHIP FIRMS

not been given a notice by the bankruptcy trustee;

(b) creditors who are associates of the bankrupt.

VOTING RIGHTS OF CREDITORS

Section 135 of the Code provides that every creditor mentioned in the list under Section 132 of the Code, or his proxy
shall be entitled to vote in respect of the resolutions in the meeting of the creditors in accordance with the voting
share assigned to him. The resolution professional shall determine the voting share to be assigned to each creditor in
the manner specified by the Insolvency and Bankruptcy Board of India. A creditor shall not be entitled to vote in respect
of a debt for an unliquidated amount.

ADMINISTRATION AND DISTRIBUTION OF ESTATE OF BANKRUPT

Section 136 of the Code provides that the bankruptcy trustee shall conduct the administration and distribution of the
estate of the bankrupt in accordance with the provisions of Chapter V (Voluntary liquidation) of the Code.

COMPLETION OF ADMINISTRATION
Section 137 of the Code provides that the bankruptcy trustee shall convene a meeting of the committee of creditors
on completion of the administration and distribution of the estate of the bankrupt in accordance with the provisions
of Chapter V (dealing with Voluntary liquidation) of the Code.
The bankruptcy trustee shall provide the committee of creditors with a report of the administration of the estate of
the bankrupt in the meeting of the said committee. The committee of creditors shall approve the report submitted by
the bankruptcy trustee within seven days of the receipt of the report and determine whether the bankruptcy trustee
should be released under Section 148 of the Code.
The bankruptcy trustee shall retain sufficient sums from the estate of the bankrupt to meet the expenses of convening
and conducting the meeting required under this Section during the administration of the estate.

DISCHARGE ORDER
Section 138 of the Code provides that the bankruptcy trustee shall apply to the Adjudicating Authority for a discharge
order on the expiry of one year from the bankruptcy commencement date or within seven days of the approval of the
committee of creditors of the completion of administration of the estates of the bankrupt under Section 137 of the
Code. The Adjudicating Authority shall pass a discharge order on an application by the bankruptcy trustee. A copy of
the discharge order shall be provided to the Insolvency and Bankruptcy Board of India, for the purpose of recording
an entry in the register referred to in Section 196 of the Code.
EFFECT OF DISCHARGE
Section 139 of the Code provides that the discharge order under Section 138 of the Code shall releasethe bankrupt
from all the bankruptcy debts. Provided that a discharge shall not:
(a) affect the functions of (b) affect the operation of c) release the (d) discharge the bankrupt
the bankruptcy the provisions of bankrupt from any debt from any excluded
trustee; or Chapter IV and V of incurred by means of debt.
Part III of the Code; fraud or breach of trust
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SHUBHAMM SUKHLECHA (CA, CS, LLM)

to which he was a
party; or

DISQUALIFICATION OF BANKRUPT
Section 140 of the Code provides that in addition to any disqualification under any other law for the time being in
force, a bankrupt shall be disqualified from:

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 LESSON 15 - BANKRUPTCY ORDER FOR INDIVIDUALS AND PARTNERSHIP FIRMS

A bankrupt shall be disqualified from

(a) being appointed or (b) being elected or (c) being elected to any
acting as a trustee or sitting or voting as a public office where the (d) being appointed or
representative in respect member of any local appointment to such acting as a public servant;
of any trust, estate or authority. office is by election; and
settlement;

Any disqualification to which a bankrupt may be subject under this Section shall cease to have effect, if the bankruptcy
order against him is modified or recalled under Section 142 of the Code, or he is discharged under Section 138 of the
Code.
For the purposes of said disqualification, the term “public servant” shall have the same meaning as assigned to it under
Section 21 of the Indian Penal Code, 1860 .

RESTRICTIONS ON BANKRUPT

(d) prior to entering into any

financial or commercial
(c) be required to inform his transaction of such value as
may be prescribed, either
business partners that he is
individually or jointly, inform all
undergoing a bankruptcy the parties involved in such
process; transaction that he is
undergoing a bankruptcy
process;

(e without the previous sanction

(b) without the previous of the bankruptcy trustee, be
sanction of the bankruptcy prohibited from creating any
trustee, be prohibited from charge on his estate or taking
creating any charge on his any further debt; sanction of the
adjudicating authority, be
estate or taking any further
incompetent to maintain any
debt; legal action or proceedings in
relation to the bankruptcy debts;
and

(a) not act as a director of

any company, or directly A bankrupt from
(f) not be permitted to
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or indirectly take part in the bankruptcy

SHUBHAMM SUKHLECHA (CA, CS, LLM)

or be concerned in the travel overseas without the

commencement date permission of the
promotion, formation or
management of a shall (Section 141): adjudicating authority.
company;

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 LESSON 15 - BANKRUPTCY ORDER FOR INDIVIDUALS AND PARTNERSHIP FIRMS

Any restriction to which a bankrupt may be subject under this Section shall cease to have effect if the bankruptcy order
against him is modified or recalled under Section 142 of the Code or he is discharged under Section 138 of the Code.

MODIFICATION OR RECALL OF BANKRUPTCY ORDER

Section 142 of the Code provides that the Adjudicating Authority may on an application or suo motu, modify or recall
a bankruptcy order, whether or not the bankrupt is discharged, if it appears to the adjudicating authority that:

(a) there exists an error apparent on the face of such order; or

(b) both the bankruptcy debts and the expenses of the bankruptcy have, after the making of the bankruptcy
order, either been paid for or secured to the satisfaction of the Adjudicating Authority.

Where the Adjudicating Authority modifies or recalls the bankruptcy order under this Section, any sale or other
disposition of property, payment made or other things duly done by the bankruptcy trustee shall be valid except that
the property of the bankrupt shall vest in such person as the Adjudicating Authority may appoint or, in default of any
such appointment, revert to the bankrupt on such terms as the Adjudicating Authority may direct. A copy of the order
passed by the Adjudicating Authority under this Section shall be provided to the Insolvency and Bankruptcy Board of
India, for the purpose of recording an entry in the register referred to in Section 191of the Code. The modification or
recall of the order by the Adjudicating Authority shall be binding on all creditors so far as it relates to any debts due to
them which form a part of the bankruptcy.
Standard of conduct
Section 143 of the Code provides that the bankruptcy trustee shall perform his functions and duties in compliance
with the code of conduct provided under Section 208 of the Code.

REPLACEMENT OF BANKRUPTCY TRUSTEE

Section 145 of the Code provides that where Committee of creditors is of the opinion that at any time during the
bankruptcy process, a bankruptcy trustee appointed under Section 125 of the Code, is required to be replaced, it may
replace him with another bankruptcy trustee in the manner provided under this Section. The Committee of creditors
may, at a meeting, by a vote of 75% of voting share propose to replace the bankruptcy trustee appointed under Section
125 of the Code, with another bankruptcy trustee.
The Committee of creditors may apply to the Adjudicating Authority for the replacement of bankruptcy trustee. The
Adjudicating Authority shall within seven days of the receipt of the application direct the Insolvency and Bankruptcy
Board of India to recommend for replacement of bankruptcy trustee. The Insolvency and Bankruptcy Board of India
shall within ten days of the direction of the Adjudicating Authority recommend a bankruptcy trustee for replacement
against whom no disciplinary proceedings are pending.
The Adjudicating Authority shall by an order appoint the bankruptcy trustee as recommended by the Insolvency and
Bankruptcy Board of India within fourteen days of receiving such recommendation. The earlier bankruptcy trustee
shall deliver possession of the estate of the bankrupt to the bankruptcy trustee appointed on the date of his
appointment.
The Adjudicating Authority may give directions to the earlier bankruptcy trustee:
(a) to share all information with the new bankruptcy trustee in respect of the bankruptcy process; and
(b) to co-operate with the new bankruptcy trustee in such matters as may be required.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

The earlier bankruptcy trustee replaced under this Section shall be released in accordance with the provisions of
Section 148 of the Code. The bankruptcy trustee appointed under this Section shall give a notice of his appointment
to the bankrupt within seven days of his appointment.

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 LESSON 15 - BANKRUPTCY ORDER FOR INDIVIDUALS AND PARTNERSHIP FIRMS

Fees of bankruptcy trustee

Section 144 of the Code provides that a bankruptcy trustee appointed for conducting the bankruptcy process shall
charge such fees as may be specified in proportion to the value of the estate of the bankrupt. The fees for the
conduct of the bankruptcy process shall be paid to the bankruptcy trustee from the distribution of the estate of the
bankrupt in the manner provided in Section 178 of the Code.

RESIGNATION BY BANKRUPTCY TRUSTEE

Section 146 of the Code provides that a bankruptcy trustee may resign if he intends to cease practicing as an insolvency
professional or there is conflict of interest or change of personal circumstances which preclude the further discharge
of his duties as a bankruptcy trustee.
The Adjudicating Authority shall within seven days of the acceptance of the resignation of the bankruptcy trustee,
direct the Insolvency and Bankruptcy Board of India for his replacement. The Insolvency and Bankruptcy Board of India
shall within ten days of the direction of the Adjudicating Authority recommend another bankruptcy trustee as a
replacement. The Adjudicating Authority shall appoint the bankruptcy trustee recommended by the Insolvency and
Bankruptcy Board of India within fourteen days of receiving the recommendation.
The replaced bankruptcy trustee shall deliver possession of the estate of the bankrupt to the bankruptcy trustee
appointed on the date of his appointment. The Adjudicating Authority may give directions to the bankruptcy trustee
who has resigned to share all information with the new bankruptcy trustee in respect of the bankruptcy process and
to co-operate with the new bankruptcy trustee in such matters as may be required. The bankruptcy trustee appointed
under this Section shall give a notice of his appointment to the committee of creditors and the bankrupt within seven
days of his appointment. The bankruptcy trustee replaced under this Section shall be released in accordance with the
provisions of Section 148 of the Code.

VACANCY IN THE OFFICE OF BANKRUPTCY TRUSTEE

Section 147 of the Code provides that if a vacancy occurs in the office of the bankruptcy trustee for any reason other
than his replacement or resignation, the vacancy shall be filled in accordance with the provisions of that Section. In
the event of the occurrence of vacancy, the Adjudicating Authority shall direct the Insolvency and Bankruptcy Board
of India for replacement of a bankruptcy trustee. The Insolvency and Bankruptcy Board of India shall within ten days
of the direction of the Adjudicating Authority recommend a bankruptcy trustee as a replacement.
The Adjudicating Authority shall appoint the bankruptcy trustee recommended by the Insolvency and Bankruptcy
Board of India within fourteen days of receiving the recommendation. The earlier bankruptcy trustee shall deliver
possession of the estate of the bankrupt to the bankruptcy trustee appointed, on the date of his appointment. The
Adjudicating Authority may give directions to the bankruptcy trustee who has vacated the office to share all
information with the new bankruptcy trustee in respect of the bankruptcy and to co- operate with the new bankruptcy
trustee in such matters as may be required. The bankruptcy trustee appointed shall give a notice of his appointment
to the committee of creditors and the bankrupt within seven days of his appointment. The earlier bankruptcy trustee
replaced under this Section shall be released in accordance with the provisions of Section 148 of the Code.
Provided that this Section 147 shall not apply if the vacancy has occurred due to temporary illness or temporary leave
of the bankruptcy trustee.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

RELEASE OF BANKRUPTCY TRUSTEE

Section 148 of the Code provides that a bankruptcy trustee shall be released from his office with effect from the date
on which the Adjudicating Authority passes an order appointing a new bankruptcy trustee in the event of replacement,
resignation or occurrence of vacancy under Sections 145, 146 or 147 of the Code as the case may be.
The bankruptcy trustee who has been so released shall share all information with the new bankruptcy trustee in

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 LESSON 15 - BANKRUPTCY ORDER FOR INDIVIDUALS AND PARTNERSHIP FIRMS

respect of the bankruptcy process and co-operate with the new bankruptcy trustee in such matters as may be required.
A bankruptcy trustee who has completed the administration of the bankruptcy process shall be released of his duties
with effect from the date on which the committee of creditors approves the report of the bankruptcy trustee under
Section 137 of the Code.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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 LESSON 16 - BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS

LESSON 16 - BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS

REGULATORY FRAMEWORK
⮞ Section 149 to 178 of the Insolvency and Bankruptcy Code, 2016

INTRODUCTION

This lesson covers the aspects relating to the administration and distribution of the estate of the bankrupt. According
to the report of the Bankruptcy law reforms Committee, Volume I rational and design (November 2015) - A sound
bankruptcy and insolvency framework requires the existence of an impartial, efficient and expeditious administration.
This is more likely to be possible for individual insolvency when administrative proceedings are placed outside the
court of law. As with legal entities, what is visualised for individuals is to enable a negotiated settlement between
creditors and debtor without active involvement of the court. The principle is to allow greater flexibility in the
repayment plans, and a time to execute the plans, that can be acceptable to both parties. If creditors and debtors can
settle on such a plan out of court, what matters for the system is that there is a record of this settlement and that it
can affect the premium of future credit transactions. Economies across the world are increasingly placing
administrative proceedings outside of the courts. This seems to be a natural way forward for India as well.
Before enactment of Insolvency and Bankruptcy Code, 2016, personal insolvency was primarily governed under two
acts in India: the Presidency Towns Insolvency Act, 1909 (for the erstwhile Presidency towns, i.e. Kolkata, Mumbai and
Chennai) and the Provincial Insolvency Act, 1920 (for the rest of India). Though these are central laws, it should be
noted that both these Acts have a number of state specific amendments. The substantive provisions under the two
acts are largely similar. There has not been any substantial changes to this regime over the years and it has proved to
be largely ineffective in practice.
In 2016, Parliament enacted the Insolvency and Bankruptcy Code. The law aims to consolidate the laws relating to
insolvency of companies and limited liability entities (including limited liability partnerships and other entities with
limited liability), unlimited liability partnerships and individuals, presently contained in a number of legislations, into
a single legislation. Chapter V of Part III (hereinafter referred to as Chapter or this Chapter) deals with administration
and distribution of estate of bankrupt.

FUNCTIONS OF BANKRUPTCY TRUSTEE

According to Section 149 of the Insolvency and Bankruptcy Code, 2016 (‘the Code’), the bankruptcy trustee shall
perform the following functions in accordance with the provisions of this Chapter
(a) investigate the affairs of the bankrupt;

(b) realise the estate of the bankrupt; and

(c) distribute the estate of the bankrupt.

It may be noted that “bankruptcy trustee” means the insolvency professional appointed as a trustee for the estate of
the bankrupt under Section 125 or Section 145 of the Code.

DUTIES OF BANKRUPT TOWARDS BANKRUPTCY TRUSTEE

Section 150 of the Code provides that the bankrupt shall assist the bankruptcy trustee in carrying out his functions by
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

a) giving to the bankruptcy trustee the information of his affairs;

b) attending on the bankruptcy trustee at such times as may be required;
c) giving notice to the bankruptcy trustee of any of the following events which have occurred after the bankruptcy
commencement date, -
i) acquisition of any property by the bankrupt;
ii) devolution of any property upon the bankrupt;

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 LESSON 16 - BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS

iii) increase in the income of the bankrupt.

d) doing all other things as may be prescribed.

The bankrupt shall give notice of the increase in income or acquisition or devolution of property within seven days of
such increase, acquisition or devolution. The bankrupt shall continue to discharge his above duties except duty under
Clause (c) above even after passing of discharge order under Section 138.

RIGHTS OF BANKRUPTCY TRUSTEE

As per Section 151 of the Code, the bankruptcy trustee may, by his official name:

(a) hold property of every description;

b) make contracts;

c) sue and be sued;

d) enter into engagements in respect of the estate of the

bankrupt;

e) employ persons to assist him;

f) execute any power of attorney, deed or other instrument; and

g) do any other act which is necessary or expedient for the

purposes of or in connection with the exercise of his rights.

GENERAL POWERS OF BANKRUPTCY TRUSTEE

According to Section 152 of the Code, the bankruptcy trustee may while discharging his functions under this Chapter
(a) sell any part of the estate of the bankrupt;
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

(b) give receipts for any money received by him;

(c) prove, rank, claim and draw a dividend in respect of such debts due to the bankrupt as are comprised in his
estate;
(d) where any property comprised in the estate of the bankrupt is held by any person by way of pledge or
hypothecation, exercise the right of redemption in respect of any such property subject to the relevant
contract by giving notice to the said person;

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 LESSON 16 - BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS

(e) where any part of the estate of the bankrupt consists of securities in a company or any other property which
is transferable in the books of a person, exercise the right to transfer the property to the same extent as the
bankrupt might have exercised it if he had not become bankrupt; and
(f) deal with any property comprised in the estate of the bankrupt to which the bankrupt is beneficially entitled
in the same manner as he might have dealt with it.

APPROVAL OF CREDITORS FOR CERTAIN ACTS

Section 153 of the Code provides that the bankruptcy trustee for the purposes of this Chapter may after procuring the
approval of the committee of creditors, -
(a) carry on any business of the bankrupt as far as may be necessary for winding it up beneficially;
(b) bring, institute or defend any legal action or proceedings relating to the property comprised in the estate of the
bankrupt;
(c) accept as consideration for the sale of any property a sum of money due at a future time subject to certain
stipulations such as security;
(d) mortgage or pledge any property for the purpose of raising money for the payment of the debts of the bankrupt;
(e) where any right, option or other power forms part of the estate of the bankrupt, make payments or incur liabilities
with a view to obtaining, for the benefit of the creditors, any property which is the subject of such right, option or
power;
(f) refer to arbitration or compromise on such terms as may be agreed, any debts subsisting or supposed to subsist
between the bankrupt and any person who may have incurred any liability to the bankrupt;
(g) make compromise or other arrangement as may be considered expedient, with the creditors;
(h) make compromise or other arrangement as he may deem expedient with respect to any claim arising out of or
incidental to the bankrupt’s estate;
(i) appoint the bankrupt to -
(A) supervise the management of the estate of the bankrupt or any part of it;
(B) carry on his business for the benefit of his creditors;
(C) assist the bankruptcy trustee in administering the estate of the bankrupt.

Vesting of estate of bankrupt in Bankruptcy Trustee

Section 154 of the Code states that the estate of the bankrupt shall vest in the bankruptcy trustee immediately from
the date of his appointment. The vesting shall take effect without any conveyance, assignment or transfer.

ESTATE OF BANKRUPT
According to Section 155 (1) of the Code, the estate of the bankrupt shall include, –
a) all property belonging to or vested in the bankrupt at the bankruptcy commencement date;
b) the capacity to exercise and to initiate proceedings for exercising all such powers in or over or in respect of
property as might have been exercised by the bankrupt for his own benefit at the bankruptcy commencement
date or before the date of the discharge order passed under section 138; and
c) all property which by virtue of any of the provisions of this Chapter is comprised in the estate.

Further as per Section 155(1) of the Code the estate of the bankrupt shall not include –
(a) excluded assets;
(b) property held by the bankrupt on trust for any other person;
INSOLVENCY AND BANKRUPTCY LAW

(c) all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund; and
SHUBHAMM SUKHLECHA (CA, CS, LLM)

(d) such assets as may be notified by the Central Government in consultation with any financial sector regulator.

Delivery of property and documents to Bankruptcy Trustee

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 LESSON 16 - BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS

Section 156 of the Code provides that, the bankrupt, his banker or agent or any other person having possession of any
property, books, papers or other records which bankruptcy trustee is required to take possession for the purposes of
the bankruptcy process shall deliver the said property and documents to the bankruptcy trustee.

Acquisition of control by Bankruptcy Trustee

According to Section 157 of the Code, the bankruptcy trustee shall take possession and control of all property, books,
papers and other records relating to the estate of the bankrupt or affairs of the bankrupt which belong to him or are
in his possession or under his control.
Where any part of the estate of the bankrupt consists of things in actionable claims, they shall be deemed to have
been assigned to the bankruptcy trustee without any notice of the assignment.

RESTRICTIONS ON DISPOSITION OF PROPERTY

Section 158(1) of the Code provides that any disposition of property made by the debtor, during the period between
the date of filing of the application for bankruptcy and the bankruptcy commencement date shall be void.
Further, Section 158(2) of the Code provides that any disposition of property made under sub-section (1) shall not give
rise to any right against any person, in respect of such property, even if he has received such property before the
bankruptcy commencement date in –
 good faith;
 for value; and
 without notice of the filing of the application for bankruptcy.
It may be noted that the term “property” means all the property of the debtor, whether or not it is comprised in the
estate of the bankrupt, but shall not include property held by the debtor in trust for any other person.

AFTER-ACQUIRED PROPERTY OF BANKRUPT (SECTION 159)

Section 159 of the Code provides that the bankruptcy trustee shall be entitled to claim for the estate of the bankrupt,
any after-acquired property by giving a notice to the bankrupt. A notice shall not be served in respect of excluded
assets or any property which is acquired by or devolves upon the bankrupt after a discharge order is passed
undersection 138. The notice shall be given within fifteen days from the day on which the acquisition or devolution of
the after-acquired property comes to the knowledge of the bankruptcy trustee. Section 159 further provides that
anything which comes to the knowledge of the bankruptcy trustee shall be deemed to have come to the knowledge
of the successor of the bankruptcy trustee at the same time; and anything which comes to the knowledge of a person
before he is appointed as a bankruptcy trustee shall be deemed to have come to his knowledge on the date of his
appointment as bankruptcy trustee.
The bankruptcy trustee shall not be entitled, by virtue of section 159, to claim from any person who has acquired any
right over after-acquired property, in good faith, for value and without notice of the bankruptcy.
A notice may be served after the expiry of the period fifteen days only with the approval of the Adjudicating Authority.
“After-acquired property” means any property which has been acquired by or has devolved upon the bankrupt after
the bankruptcy commencement date.

ONEROUS PROPERTY OF BANKRUPT

Section 160 of the Code provides that the bankruptcy trustee may, by giving notice to the bankrupt or any person
interested in the onerous property, disclaim any onerous property which forms a part of the estate of the bankrupt.
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SHUBHAMM SUKHLECHA (CA, CS, LLM)

The bankruptcy trustee may give the notice under notwithstanding that he has taken possession of the onerous
property, endeavored to sell it or has exercised rights of ownership in relation to it.
Said notice of disclaimer shall –
(a) determine, as from the date of such notice, the rights, interests and liabilities of the bankrupt in respect of the
onerous property disclaimed;
(b) discharge the bankruptcy trustee from all personal liability in respect of the onerous property as from the date

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of appointment of the bankruptcy trustee.

The term “onerous property” means -
i. any unprofitable contract; and
ii. any other property comprised in the estate of the bankrupt which is unsaleable or not readily saleable, or is
such that it may give rise to a claim.
Further the said notice of disclaimer shall not be given in respect of the property which has been claimed for the estate
of the bankrupt under section 155 without the permission of the committee of creditors.
And the notice of disclaimer shall not affect the rights or liabilities of any other person, and any person who sustains
a loss or damage in consequence of the operation of a disclaimer under this section shall be deemed to be a creditor
of the bankrupt to the extent of the loss or damage.

NOTICE TO DISCLAIM ONEROUS PROPERTY

As per Section 161(1) of the Code, no notice of disclaimer under section 160 shall be necessary if –
a) a person interested in the onerous property has applied in writing to the bankruptcy trustee or his predecessor
requiring him to decide whether the onerous property should be disclaimed or not; and
b) a decision under clause (a) has not been taken by the bankruptcy trustee within seven days of receipt of the
notice.
As per section 61(2) of the code, any onerous property which con not be disclaimed under sub-section (1) shall be
deemed to be part the estate of the bankrupt.
An onerous property is said to be disclaimed where notice in relation to that property has been given by the bankruptcy
trustee under section 160.

DISCLAIMER OF LEASEHOLDS
According to Section 162 of the Code, the bankruptcy trustee shall not be entitled to disclaim any leasehold interest,
unless a notice of disclaimer has been served on every interested person and –
(a) no application objecting to the disclaimer by the interested person, has been filed with respect to the leasehold
interest, within fourteen days of the date on which notice was served; and
(b) where the application objecting to the disclaimer has been filed by the interested person, the Adjudicating
Authority has directed under section 163 that the disclaimer shall take effect.

Where the Adjudicating Authority gives a direction above, it may also make order with respect to fixtures,
improvements by tenant and other matters arising out of the lease as it may think fit.

What happens when an onerous property cannot be disclaimed?

As per Section 161(2) of the Code, any onerous property which cannot be disclaimed under sub-section (1) shall be
deemed to be part of the estate of the bankrupt.

CHALLENGE AGAINST DISCLAIMED PROPERTY

As per Section 163(1) of the Code, an application challenging the disclaimer may be made by the following persons
under that section to the adjudicating authority –
a) any person who claims an interest in the disclaimed property; or
b) any person who is under any liability in respect of the disclaimed property; or
c) where the disclaimed property is a dwelling house, any person who on the date of application for bankruptcy
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

was in occupation of or entitled to occupy that dwelling house.

Section 163(2) of the Code provides that the adjudicating authority may on an application under sub-section (1) make
an order for the vesting of the disclaimed property in, or for its delivery to any of the persons mentioned in sub-
section( 1 ).
The Adjudicating Authority shall not make an order in favour of a person who has made an application under clause
(b) of sub-section (1) except where it appears to the adjudicating authority that it would be just to do so for the purpose

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 LESSON 16 - BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS

of compensating the person.

The effect of an order under this section shall be taken into account while assessing loss or damage sustained by any
person in consequence of the disclaimer under sub-section (5) of section 160.
An order vesting property in any person need not be completed by any consequence, assignment or transfer.

UNDERVALUED TRANSACTIONS
As per Section 164(1) of the Code, the bankruptcy trustee may apply to the adjudicating authority for an order under
that section in respect of an undervalued transaction between a bankrupt and any person.
As per Section 164(2) of the Code, the undervalued transaction should have –
(a) been entered into during the period of two years ending on the filing of the application for bankruptcy; and
(b) caused bankruptcy process to be triggered.
As per Section 164(3) of the Code, a transaction between a bankrupt and his associate entered into during the period
of two years preceding the date of making of the application for bankruptcy shall be deemed to be an undervalued
transaction under this section.
Section 164(4) of the Code provides that on the application of the bankruptcy trustee, the adjudicating authority may
(a) pass an order declaring an undervalued transaction void;
(b) pass an order requiring any property transferred as a part of an undervalued transaction to be vested with the
bankruptcy trustee as a part of the estate of the bankrupt; and
(c) pass any other order it thinks fit for restoring the position to what it would have been if the bankrupt had not
entered into the undervalued transaction.

As per Section 164(5) the order under Section 164(4)(a) shall not be passed if it is proved by the bankrupt that the
transaction was undertaken in the ordinary course of business of the bankrupt:
However, the provisions of Section 164(5) shall not be applicable to undervalued transaction entered into between a
bankrupt and his associate under Section 164(3).
What constitutes undervalued transaction?
As per Section 164(6) a bankrupt enters into an undervalued transaction with any person if -
(a) he makes a gift to that person;
(b) no consideration has been received by that person from the bankrupt;
(c) it is in consideration of marriage; or
(d) it is for a consideration, the value of which in money or money’s worth is significantly less than the value in
money or money’s worth of the consideration provided by the bankrupt.
Note: Undervalued transactions are basically the transactions where either there is no consideration received by
the bankrupt or the consideration received is much lesser than the market value.

PREFERENCE TRANSACTIONS (SECTION 165)

1. The bankruptcy trustee may apply to the Adjudicating Authority for an order under this section if a bankrupt has
given a preference to any person.
2. The transaction giving preference to an associate of the bankrupt under sub-section (1) should have been entered
into by the bankrupt with the associate during the period of two years ending on the date of the application for
bankruptcy.
3. Any transaction giving preference not covered under sub-section (2) should have been entered into by the
bankrupt during the period of six months ending on the date of the application for bankruptcy.
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SHUBHAMM SUKHLECHA (CA, CS, LLM)

4. The transaction giving preference under sub-section (2) or under sub-section (3) should have caused the
bankruptcy process to be triggered.
5. On the application of the bankruptcy trustee under sub-section (1), the adjudicating authority may –
(a) pass an order declaring a transaction giving preference void;
(b) pass an order requiring any property transferred in respect of a transaction giving preference to be vested with
the bankruptcy trustee as a part of the estate of the bankrupt; and

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 LESSON 16 - BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS

(c) pass any other order it thinks fit for restoring the position to what it would have been if the bankrupt had not
entered into the transaction giving preference.
6. The adjudicating authority shall not pass an order under sub-section (5) unless the bankrupt was influenced in his
decision of giving preference to a person by a desire to produce in relation to that person an effect under clause
(b) of sub-section (8).
7. For the purpose of sub-section (6), if the person is an associate of the bankrupt, (otherwise than by reason only
of being his employee), at the time when the preference was given, it shall be presumed that the bankrupt was
influenced in his decision under that sub- section.

EFFECT OF ORDER (SECTION 166)

1. Subject to the provision of sub- section (2), an order passed by the adjudicating authority under section 164 or
section 165 shall not, -
a) give rise to a right against a person interested in the property which was acquired in an undervalued
transaction or a transaction giving preference, whether or not he is the person with whom the bankrupt
entered into such transaction; and
b) require any person to pay a sum to the bankruptcy trustee in respect of the benefit received from the
undervalued transaction or a transaction giving preference, whether or not he is the person with whom the
bankrupt entered into such transaction.
2. The provision of sub-section (1) shall apply only if the interest was acquired or the benefit was received –

a) in good faith;

b) for value;

c) without notice that the bankrupt entered into the transaction at an under- value or for
giving preference;

d) without notice that the bankrupt has filed an application for bankruptcy or a bankruptcy
order has been passed; and

e) by any person who at the time of acquiring the interest or receiving the benefit was not an
associate of the bankrupt.

3. Any sum required to be paid to the bankruptcy trustee under sub-section (1) shall be included in the estate of the
bankrupt.
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SHUBHAMM SUKHLECHA (CA, CS, LLM)

EXTORTIONATE CREDIT TRANSACTIONS (SECTION 167)

1. Subject to sub-section (6), on an application by the bankruptcy trustee, the adjudicating authority may make an
order under this section in respect of extortionate credit transactions to which the bankrupt is or has been a party.
2. The transactions under sub-section ( 1 ) should have been entered into by the bankrupt during the period of two
years ending on the bankruptcy commencement date.
3. An order of the adjudicating authority may -

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(a) set aside the whole or part of any debt created by the transaction;
(b) vary the terms of the transaction or vary the terms on which any security for the purposes of the transaction
is held;
(c) require any person who has been paid by the bankrupt under any transaction, to pay a sum to the bankruptcy
trustee;
(d) require any person to surrender to the bankruptcy trustee any property of the bankrupt held as security for
the purposes of the transaction.
4. Any sum paid or any property surrendered to the bankruptcy trustee shall be included in the estate of the
bankrupt.
5. Any debt extended by a person regulated for the provision of financial services in compliance with the law in force
in relation to such debt, shall not be considered as an extortionate credit transaction under this section.

OBLIGATIONS UNDER CONTRACTS (SECTION 168)

1. This section shall apply where a contract has been entered into by the bankrupt with a person before the
bankruptcy commencement date.
2. Any party to a contract, other than the bankrupt under sub-section (1), may apply to the adjudicating authority
for
(a) an order discharging the obligations of the applicant or the bankrupt under the contract; and
(b) payment of damages by the party or the bankrupt, for non-performance of the contract or otherwise.
3. Any damages payable by the bankrupt by virtue of an order under clause (b) of sub- section (2) shall be provable
as bankruptcy debt.
4. When a bankrupt is a party to the contract under this section jointly with another person, that person may sue or
be sued in respect of the contract without joinder of the bankrupt.

ADMINISTRATION OF ESTATE OF DECEASED BANKRUPT

According to Section 170(1) of the Code, all the provisions of Chapter V relating to the administration and distribution
of the estate of the bankrupt shall, so far as the same are applicable, apply to the administration of the estate of a
deceased bankrupt.
Section 170(2) provides that while administering the estate of a deceased bankrupt, the bankruptcy trustee shall have
regard to the claims by the legal representative of the deceased bankrupt to payment of the proper funeral and
testamentary expenses incurred by them.
Section 170(3) provides that the claims under sub-section (2) shall rank equally to the secured creditors in the priority
provided under section 178.
If, on the administration of the estate of a deceased bankrupt, any surplus remains in the hands of the bankruptcy
trustee after payment in full of all the debts due from the deceased bankrupt, together with the costs of the
administration and interest as provided under section 178, such surplus shall be paid to the legal representatives of
the estate of the deceased bankrupt or dealt with in such manner as may be prescribed.
What happens to the proceedings on death of the bankrupt?
Since bankruptcy proceedings are civil in nature, these proceedings survive the demise of bankrupt. As per Section
169 of the Code, if a bankrupt dies, the bankruptcy proceedings shall, continue as if he were alive.

PROOF OF DEBT
As per Section 171 of the Code the bankruptcy trustee shall give notice to each of the creditors to submit proof of debt
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

within fourteen days of preparing the list of creditors under section 132.
The proof of debt shall –
(a) require the creditor to give full particulars of debt, including the date on which the debt was contracted and the
value at which that person assesses it;
(b) require the creditor to give full particulars of the security, including the date on which the security was given and
the value at which that person assesses it;

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(c) be in such form and manner as may be prescribed.

In case the creditor is a decree holder against the bankrupt, a copy of the decree shall be a valid proof of debt.
Where a debt bears interest, that interest shall be provable as part of the debt except in so far as it is owed in respect
of any period after the bankruptcy commencement date.
The bankruptcy trustee shall estimate the value of any bankruptcy debt which does not have a specific value. The value
assigned by the bankruptcy trustee shall be the amount provable by the concerned creditor.
A creditor may prove for a debt where payment would have become due at a date later than the bankruptcy
commencement date as if it were owed presently and may receive dividends in a manner as may be prescribed.
Where the bankruptcy trustee serves a notice and the person on whom the notice is served does not file a proof of
security within thirty days after the date of service of the notice, the bankruptcy trustee may, with leave of the
adjudicating authority, sell or dispose of any property that was subject to the security, free of that security.

MUTUAL CREDIT AND SET-OFF

Section 173 states that where before the bankruptcy commencement date, there have been mutual dealings between
the bankrupt and any creditor, the bankruptcy trustee shall -
 take an account of what is due from each party to the other in respect of the mutual dealings and the sums
due from one party shall be set off against the sums due from the other; and
 only the balance shall be provable as a bankruptcy debt or as the amount payable to the bankruptcy trustee
as part of the estate of the bankrupt.
Sums due from the bankrupt to another party shall not be included in the account taken by the bankruptcy trustee
above, if that other party had notice at the time they became due that an application for bankruptcy relating to the
bankrupt was pending.

Proof of debt by secured creditors

Section 172 of the Code provides that where a secured creditor realizes his security, he may produce proof of the
balance due to him. Where a secured creditor surrenders his security to the bankruptcy trustee for the general
benefit of the creditors, he may produce proof of his whole claim.

DISTRIBUTION OF INTERIM DIVIDEND

According to Section 174 of the Code, whenever the bankruptcy trustee has sufficient funds in his hand, he may declare
and distribute interim dividend among the creditors in respect of the bankruptcy debts which they have respectively
proved.
Where the bankruptcy trustee has declared any interim dividend, he shall give notice of such dividend and the manner
in which it is proposed to be distributed.
In the calculation and distribution of the interim dividend, the bankruptcy trustee shall make provision for –
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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 LESSON 16 - BANKRUPTCY FOR INDIVIDUALS AND PARTNERSHIP FIRMS

any bankruptcy debts which appear to him to be due to persons who, by reason of the
distance of their place of residence, may not have had sufficient time to tender and
establish their debts; and

any bankruptcy debts which are subject of claims which have not yet been
determined;

disputed proofs and claims; and

expenses necessary for the administration of the estate of the bankrupt. any
bankruptcy debts which are subject of claims which have not yet been determined;
disputed proofs and claims; and

DISTRIBUTION OF PROPERTY
According to Section 175(1) of the Code, the bankruptcy trustee may, with the approval of the committee of creditors,
divide in its existing form amongst the creditors, according to its estimated value, any property in its existing form
which from its peculiar nature or other special circumstances cannot be readily or advantageously sold.
Section 175(2) provides that an approval under sub-section (1) shall be sought by the bankruptcy trustee for each
transaction, and a person dealing with the bankruptcy trustee in good faith and for value shall not be required to
enquire whether any approval required under sub-section (1) has been given.
Section 175(3) provides that where the bankruptcy trustee has done anything without the approval of the committee
of creditors, the committee may, for the purpose of enabling him to meet his expenses out of the estate of the
bankrupt, ratify the act of the bankruptcy trustee.
Section 175(4) states that the committee of the creditors shall not ratify the act of the bankruptcy trustee under
Section 175(3) unless it is satisfied that the bankruptcy trustee acted in a case of urgency and has sought its ratification
without undue delay.

FINAL DIVIDEND (SECTION 176)

1. Where the bankruptcy trustee has realised the entire estate of the bankrupt or so much of it as could be realised
in the opinion of the bankruptcy trustee, he shall give notice -
(a) of his intention to declare a final dividend; or
(b) that no dividend or further dividend shall be declared.

2. The notice under sub-section (1) shall contain such particulars as may be prescribed and shall require all claims
against the estate of the bankrupt to be established by a final date specified in the notice.
3. The Adjudicating Authority may, on the application of any person interested in the administration of the estate of
the bankrupt, postpone the final date referred to in sub-section (2).
After the final date referred to in sub-section (2), the bankruptcy trustee shall –
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4.
SHUBHAMM SUKHLECHA (CA, CS, LLM)

a) defray any outstanding expenses of the bankruptcy out of the estate of the bankrupt; and
b) if he intends to declare a final dividend, declare and distribute that dividend among the creditors who have
proved their debts, without regard to the claims of any other persons.
5. If a surplus remains after payment in full with interest to all the creditors of the bankrupt and the payment of the
expenses of the bankruptcy, the bankrupt shall be entitled to the surplus.

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6. Where a bankruptcy order has been passed in respect of one partner in a firm, a creditor to whom the bankrupt
is indebted jointly with the other partners in the firm or any of them shall not receive any dividend out of the
separate property of the bankrupt until all the separate creditors have received the full amount of their respective
debts.

CLAIMS OF CREDITORS (SECTION 177)

1. A creditor who has not proved his debt before the declaration of any dividend is not entitled to disturb, by reason
that he has not participated in it, the distribution of that dividend or any other dividend declared before his debt
was proved, but
a) when he has proved the debt, he shall be entitled to be paid any dividend or dividends which he has failed to
receive, out of any money for the time being available for the payment of any further dividend; and
b) any dividend or dividends payable to him shall be paid before that money is applied to the payment of any
such further dividend.

2. No action shall lie against the bankruptcy trustee for a dividend, but if the bankruptcy trustee refuses to pay a
dividend payable under sub-section (1), the adjudicating authority may order him to –
(a) pay the dividend; and

(b) pay, out of his own money -

(i) interest on the dividend; and

(ii) the costs of the proceedings in which the order to pay has been made.

PRIORITY OF PAYMENT OF DEBTS (SECTION 178)

1. Notwithstanding anything to the contrary contained in any law enacted by the Parliament or the State Legislature
for the time being in force, in the distribution of the final dividend, the following debts shall be paid in priority to
all other debts —
(a) firstly, the costs and expenses incurred by the bankruptcy trustee for the bankruptcy process in full;
(b) secondly, -
(i) the workmen’s dues for the period of twenty-four months preceding the bankruptcy commencement
date; and
(ii) debts owed to secured creditors;
(c) thirdly, wages and any unpaid dues owed to employees, other than workmen, of the bankrupt for the
period of twelve months preceding the bankruptcy commencement date;
(d) fourthly, any amount due to the Central Government and the State Government including the amount to
be received on account of Consolidated Fund of india and the Consolidated Fund of a State, if any, in respect
of the whole or any part of the period of two years preceding the bankruptcy commencement date;
(e) lastly, all other debts and dues owed by the bankrupt including unsecured debts.
2. The debts in each class specified in sub-section (1) shall rank in the order mentioned in that sub- section but debts
of the same class shall rank equally amongst themselves, and shall be paid in full, unless the estate of the bankrupt
is insufficient to meet them, in which case they shall abate in equal proportions between themselves.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

3. Where any creditor has given any indemnity or has made any payment of moneys by virtue of which any asset of
the bankrupt has been recovered, protected or preserved, the adjudicating authority may make such order as it
thinks just with respect to the distribution of such asset with a view to giving that creditor an advantage over
other creditors in consideration of the risks taken by him in so doing.

4. Unsecured creditors shall rank equally amongst themselves unless contractually agreed to the contrary by such

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creditors.
5. Any surplus remaining after the payment of the debts under sub-section (1) shall be applied in paying interest
on those debts in respect of the periods during which they have been outstanding since the bankruptcy
commencement date.

6. Interest payments under sub-section (5) shall rank equally irrespective of the nature of the debt.
7. In the case of partners, the partnership property shall be applicable in the first instance in payment of the
partnership debts and the separate property of each partner shall be applicable in the first instance in payment
of his separate debts.
8. Where there is a surplus of the separate property of the partners, it shall be dealt with as part of the partnership
property; and where there is a surplus of the partnership property, it shall be dealt with as part of the respective
separate property in proportion to the rights and interests of each partner in the partnership property.

Priority of Payments of Debts (Section 178)

 The costs and expenses incurred by the bankruptcy trustee for the bankruptcy process in full;
 The workmen’s dues for the period of twenty-four months preceding the bankruptcy commencement date; and
 debts owed to secured creditors;
 wages and any unpaid dues owed to employees, other than workmen, of the bankrupt for the period of twelve
months preceding the bankruptcy commencement date;
 any amount due to the Central Government and the State Government including the amount to be received on
account of Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or
any part of the period of two years preceding the bankruptcy commencement date;
 all other debts and dues owed by the bankrupt including unsecured debts.

ADJUDICATING AUTHORITY FOR INDIVIDUALS AND PARTNERSHIP FIRMS

Section 179 of the Code, states that subject to the provisions of section 60, the adjudicating authority, in relation to
insolvency matters of individuals and firms shall be the Debt Recovery Tribunal having territorial jurisdiction over the
place where the individual debtor actually and voluntarily resides or carries on business or personally works for gain
and can entertain an application under this Code regarding such person.
The Debt Recovery Tribunal shall, notwithstanding anything contained in any other law for the time being in force,
have jurisdiction to entertain or dispose of –
a) any suit or proceeding by or against the individual debtor;
b) any claim made by or against the individual debtor;
c) any question of priorities or any other question whether of law or facts, arising out of or in relation to insolvency
and bankruptcy of the individual debtor or firm under this Code.
Notwithstanding anything contained in the Limitation Act, 1963 or in any other law for the time being in force, in
computing the period of limitation specified for any suit or application in the name and on behalf of a debtor for which
an order of moratorium has been made under Part III, the period during which such moratorium is in place shall be
excluded.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

CIVIL COURT NOT TO HAVE JURISDICTION

According to Section 180 of the Code, no civil court or authority shall have jurisdiction to entertain any suit or
proceedings in respect of any matter on which the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal
has jurisdiction under this Code.
No injunction shall be granted by any Court, Tribunal or Authority in respect of any action taken, or to be taken, in

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pursuance of any power conferred on the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal by or under
this Code.

APPEAL TO DEBT RECOVERY APPELLATE TRIBUNAL

As per Section 181 of the Code, an appeal from an order of the Debt Recovery Tribunal under the Code shall be filed
within thirty days before the Debt Recovery Appellate Tribunal.
The Debt Recovery Appellate Tribunal may, if it is satisfied that a person was prevented by sufficient cause from filing
an appeal within thirty days, allow the appeal to be filed within a further period not exceeding fifteen days.

APPEAL TO SUPREME COURT

Section 182 of the Insolvency and Bankruptcy Code, 2016 provides that an appeal from an order of the Debt Recovery
Appellate Tribunal on a question of law under this Code shall be filed within forty-five days before the Supreme Court.
The Supreme Court may, if it is satisfied that a person was prevented by sufficient cause from filing an appeal with in
forty-five days, allow the appeal to be filed within a further period not exceeding fifteen days.

Debt Recovery
Supreme Court Appellate Tribunal Debt Recovery
(DRAT) Tribunal (DRT)

Within 45 days from Within 30 days from

the order of DRAT the order of DRT
(further period not (further period not
exceeding 15 days) exceeding 15 days)
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LESSON 17 - FRESH START PROCESS

REGULATORY FRAMEWORK

⮞ Section 80 to 93 of the Insolvency and Bankruptcy Code, 2016

INTRODUCTION

The Insolvency and Bankruptcy Code, 2016 (“Code”) is a consolidated statute which deals with insolvency and
bankruptcy of corporate, limited liability partnerships (LLPs), individuals and partnership firms. The Code is a one shot
solution which provides for dealing with insolvency or bankruptcy of various organizational structures under one roof.
The fresh start process is enshrined under Chapter II of Part III of the Code. The fresh start process is an opportunity
to a debtor who is unable to pay his debts to clear off his debts in a time-bound manner on fulfilling the prescribed
conditions for the fresh start of his qualifying debts.
The intent of fresh start process is to provide debtors with comparatively small debts, a chance to discharge off their
debts and restart afresh without any liability. The fresh start process is an alternative to the insolvency and bankruptcy
processes. To prevent and curb the abuse of this debtor centric process, the Code has aligned certain restrictions on
the applicability and validity of fresh start process.

This Lesson enables readers to comprehend the provisions specified under the Code for initiating fresh start process
by a debtor subject to fulfillment of certain criteria. Since the provisions of fresh start process have not been notified
under the Code therefore no statutory regulations providing the form and manner for initiating fresh start process
have been introduced yet by the Insolvency and Bankruptcy Board of India (“Board”).

WHO CAN MAKE AN APPLICATION FOR FRESH START PROCESS?

Section 80 of the Insolvency and Bankruptcy Code, 2016 provides that a debtor who is unable to pay his debt and fulfils
the below mentioned conditions shall be entitled to make an application for a fresh start process for discharge of his
qualifying debt.
Qualifying Debt means amount due, which includes interest or any other sum due in respect of the amounts owed
under any contract, by the debtor for a liquidated sum either immediately or at certain future time but does not
include:
 An excluded debt
 a debt to the extent it is secured
 any debt which has been incurred three months prior to the date of the application for fresh start process
Excluded debt means:
 liability to pay fine imposed by a Court or Tribunal;
 liability to pay damages for negligence, nuisance or breach of a statutory, contractual or other legal obligation;
 liability to pay maintenance to any person under any law for the time being in force;
 liability in relation to a student loan;
 any other debt as may be prescribed.

Conditions to be fulfilled for applying for fresh start process:

INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

A debtor may either personally or through a Resolution Professional may apply for fresh start process if he fulfills
the following conditions:
(a) The (b) The (c) The (d) He (e) He does (f) A (g) No previous
gross annual aggregate aggregate is not an not own a fresh start fresh start order
income of value of the value of the undischarged dwelling unit, process, under these

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 LESSON 17 - FRESH START PROCESS

the debtor assets of the qualifying bankrupt; irrespective insolvency provisions has
does not debtor does debts does of whether resolution been made in
exceed sixty not exceed not exceed it is process or relation to him
thousand twenty thirty -five encumbered bankruptcy in the preceding
rupees; thousand thousand or not; process twelve months
rupees; rupees; is not of the date of
subsisting the application
against for fresh start.
him; and

FILING OF APPLICATIONS FOR FRESH START PROCESS AND ITS EFFECT THEREOF

Sub-section 4 of Section 81 of the Insolvency and Bankruptcy Code, 2016 provides that an application filed for fresh
start process shall be in such form and manner and accompanied by such fee as may be prescribed by the regulations
after their enforcement and shall contain the following information supported by an affidavit namely:
(a) list of all debts owed by the debtor as on the date of the said application along with details relating to the
amount of each debt, interest payable thereon and the names of the creditors to whom each debt is owed;
(b) the interest payable on the debts and the rate thereof stipulated in the contract;
(c) list of security held in respect of any of the debts;
(d) the financial information of the debtor and his immediate family for up to two years prior to the date of the
application;
(e) the particulars of the debtor’s personal details, as may be prescribed;
(f) the reasons for making the application;
(g) the particulars of any legal proceedings which, to the debtor’s knowledge has been commenced against him;
and
(h) The confirmation that no previous fresh start order under the provisions of the Code has been made in respect
of the qualifying debts of the debtor in the preceding twelve months of the date of the application.

When an application is filed under Section 80 by a debtor, an interim-moratorium shall commence on the date of filing
of said application in relation to all the debts and shall cease to have effect on the date of admission or rejection of
such application, as the case may be. During the interim-moratorium period if any legal action or legal proceeding is
pending in respect of any of debts of the debtor then the same shall be deemed to have been stayed and no creditor
shall initiate any legal action or proceedings in respect of such debt.

APPOINTMENT OF RESOLUTION PROFESSIONAL

Section 82 of the Insolvency and Bankruptcy Code, 2016 provides that where an application under Section 80 is filed
by the debtor through a Resolution Professional, the Adjudicating Authority shall direct the Board within seven days
of the date of receipt of the application and shall seek confirmation from the Board that there are no disciplinary
proceedings against the Resolution Professional who has submitted such application.
The Board shall communicate to the adjudicating authority in writing either:
 Confirming the appointment of the Resolution Professional who filed an application; or

 Rejecting the appointment of the Resolution Professional who filed an application and nominating a Resolution
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

Professional suitable for the fresh start process.

Where an application under section 80 is filed by the debtor himself and not through the Resolution Professional, the
adjudicating authority shall direct the Board within seven days of the date of the receipt of an application to nominate
a Resolution Professional for the fresh start process. The Board shall nominate a Resolution Professional within ten
days of receiving the direction issued by the adjudicating authority. The adjudicating authority shall by order appoint
the Resolution Professional recommended or nominated by the Board.

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 LESSON 17 - FRESH START PROCESS

EXAMINATION OF APPLICATION BY RESOLUTION PROFESSIONAL

Section 83 of the Insolvency and Bankruptcy Code, 2016 provides that the Resolution Professional shall examine the
application made under Section 80 within ten days of his appointment and submit a report to the adjudicating
authority, either recommending acceptance or rejection of the application.
The report by the Resolution Professional shall contain the details of the amounts mentioned in the application which
in the opinion of the Resolution Professional are–
 qualifying debts; and

 liabilities eligible for discharge under sub-section (3) of Section 92.

The Resolution Professional may call for such further information or explanation in connection with the application as
may be required from the debtor or any other person who, in the opinion of the Resolution Professional, may provide
such information. The debtor or any other person, as the case may be, shall furnish such information or explanation
within seven days of receipt of the request for additional information or explanation.
The Resolution Professional shall presume that the debtor is unable to pay his debts at the date of the application, if
in his opinion:
 the information supplied in the application indicates that the debtor is unable to pay his debts and he has no
reason to believe that the information supplied is incorrect or incomplete; and

 there is no change in the financial circumstances of the debtor since the date of the application enabling the
debtor to pay his debts.

The Resolution Professional shall record the reasons for recommending the acceptance or rejection of the application
in the report to the adjudicating authority and shall give a copy of the report to the debtor.
The Resolution Professional shall reject the application in the following cases:

a) The debtor does not satisfy the conditions specified under Section 80; or

b) the debts disclosed in the application by the debtor are not qualifying debts; or

c) the debtor has deliberately made a false representation or omission in the application or with respect to the
documents or information submitted.

ADMISSION OR REJECTION OF APPLICATION BY ADJUDICATING AUTHORITY AND ITS EFFECT THEREOF

Section 84 of the Insolvency and Bankruptcy Code, 2016 provides that the Adjudicating Authority may within fourteen
days from the date of submission of the report by the Resolution Professional pass an order either admitting or
rejecting the application made under sub-section (1) of Section 81. In case the application has been accepted by the
Adjudicating Authority, then the order shall state the amount which has been accepted as qualifying debts by the
Resolution Professional and other amounts eligible for discharge under Section 92 for the purposes of the fresh start
order.
A copy of the order passed by the Adjudicating Authority along with a copy of the application shall be provided to the
creditors mentioned in the application within two days of the passing of the order.
Section 85 of the Insolvency and Bankruptcy Code, 2016 provides that on the date of admission of the application, the
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

moratorium period shall commence in respect of all the debts of the debtor. During the moratorium period, any
pending legal action or legal proceeding in respect of any debt shall be deemed to have been stayed and pursuant to
the provisions of Section 86, the creditors shall not initiate any legal action or proceedings in respect of any debt. The
moratorium ceases to have effect at the end of the period of one hundred and eighty days beginning with the date of
admission, unless the order admitting the application is revoked under sub- section (2) of section 91.
During the moratorium period, the debtor shall:

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 LESSON 17 - FRESH START PROCESS

 not act as a director of any company, or directly or indirectly take part in or be concerned in the promotion,
formation or management of a company;
 not dispose of or alienate any of his assets;
 inform his business partners that he is undergoing a fresh start process;
 be required to inform prior to entering into any financial or commercial transaction of such value as may be
notified by the Central Government, either individually or jointly, that he is undergoing a fresh start process;
 disclose the name under which he enters into business transactions, if it is different from the name in the
application admitted under Section 84; and
 not travel outside India except with the permission of the Adjudicating Authority.

OBJECTIONS BY CREDITOR AND THEIR EXAMINATION BY RESOLUTION PROFESSIONAL

Section 86 of the Insolvency and Bankruptcy Code, 2016 provides that any creditor mentioned in the order of the
Adjudicating Authority under Section 84 to whom a qualifying debt is owed, may within a period of ten days from the
date of receipt of the order under Section 84, object only on the following grounds, namely:
 inclusion of a debt as a qualifying debt; or

 incorrectness of the details of the qualifying debt specified in the order under Section 84.

A creditor may file an objection by way of an application to the Resolution Professional. The application shall be
supported by such information and documents as may be prescribed. The Resolution Professional shall consider every
objection made under this Section. The Resolution Professional shall examine the objections and either accept or
reject the objections within ten days of the date of the application. The Resolution Professional may examine on any
matter that appears to him to be relevant to the making of a final list of qualifying debts for the purposes of Section
92.
On the basis of the examination, the Resolution Professional shall:
a) prepare an amended list of qualifying debts for the purpose of the discharge order;
b) make an application to the adjudicating authority for directions under section 90; or
c) take any other steps in relation to the debtor.

APPLICATION AGAINST DECISION OF RESOLUTION PROFESSIONAL

Section 87 of the Insolvency and Bankruptcy Code, 2016 provides that the debtor or the creditor, who is aggrieved by
the action taken by the Resolution Professional under Section 86, may within ten days of such decision, make an
application to the Adjudicating Authority challenging such action on any of the following grounds, namely:
a) that the Resolution Professional has not given an opportunity to the debtor or the creditor to make a
representation; or
b) that the Resolution Professional colluded with the other party in arriving at the decision; or
c) that the Resolution Professional has not complied with the requirements of Section 86.
The Adjudicating Authority shall decide the application referred within fourteen days of such application and make an
order as it deems fit. Where the application has been allowed by the Adjudicating Authority, it shall forward its order
to the Board and the Board may take such action as may be required against the Resolution Professional.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

General duties of Debtor

Section 88 of the Insolvency and Bankruptcy Code, 2016 prescribes the duties of the debtor during fresh start process
which is as follows:

a) To make available to the Resolution Professional all information relating to his affairs, attend meetings and
comply with the requests of the Resolution Professional in relation to the fresh start process.

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 LESSON 17 - FRESH START PROCESS

b) to inform the Resolution Professional as soon as reasonably possible of any material error or omission in relation
to the information or document supplied to the Resolution Professional or any change in financial circumstances
after the date of application, where such change has an impact on the fresh start process.

REPLACEMENT OF RESOLUTION PROFESSIONAL

Section 89 of the Insolvency and Bankruptcy Code, 2016 prescribes that where the debtor or the creditor is of the
opinion that the Resolution Professional appointed under section 82 is required to be replaced, they may apply to the
Adjudicating Authority for the replacement of such Resolution Professional. the Adjudicating Authority shall within
seven days of the receipt of the application make a reference to the Board for replacement of the resolution
Professional. the Board shall within ten days of the receipt of a reference from the Adjudicating Authority under
recommend the name of insolvency professional to the Adjudicating Authority against whom no disciplinary
proceedings are pending and then consequently Adjudicating Authority shall appoint another Resolution Professional
for the purposes of the fresh start process on the basis of the recommendation by the Board. The Adjudicating
Authority may give directions to the replaced Resolution Professional to share all information with the new Resolution
Professional in respect of the fresh start process; and to co-operate with the new Resolution Professional in such
matters as may be required.

Directions for compliances of restrictions

Section 90 of the Insolvency and Bankruptcy Code, 2016 provides that Resolution Professional may apply to the
Adjudicating Authority for any of the following directions, namely:

a) Compliance of any restrictions referred to in sub-section (3) of Section 85 in case of non-compliance by the
debtor; or

b) Compliance of the duties of the debtor referred to in section 88, in case on non-compliance by the debtor.

The Resolution Professional may apply to the Adjudicating Authority for directions in relation to any other matter
under these provisions for which no specific provisions have been made.

REVOCATION OF ORDER ADMITTING APPLICATION

Section 91 of the Insolvency and Bankruptcy Code, 2016 provides that the Resolution Professional may submit an
application to the Adjudicating Authority seeking revocation of its order made under Section 84 on the following
grounds, namely:
a) if due to any change in the financial circumstances of the debtor, the debtor is ineligible for a fresh start process;
or
b) non-compliance by the debtor of the restrictions imposed under sub-section (3) of section 85; or
c) if the debtor has acted in a mala fide manner and has wilfully failed to comply with the provisions of this Chapter.
The Adjudicating Authority shall within fourteen days of the receipt of the application, may by order admit or reject
the application. On passing of the order admitting the application, the moratorium and the fresh start process shall
cease to have effect. A copy of the order passed by the Adjudicating Authority under this Section shall be provided to
INSOLVENCY AND BANKRUPTCY LAW

the Board for the purpose of recording an entry in the register referred to in Section 196.
SHUBHAMM SUKHLECHA (CA, CS, LLM)

DISCHARGE ORDER

Section 92 of the Insolvency and Bankruptcy Code, 2016 provides that the Resolution Professional shall prepare a final
list of qualifying debts and submit such list to the Adjudicating Authority at least seven days before the moratorium
period comes to an end. The Adjudicating Authority shall pass a discharge order at the end of the moratorium period

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 LESSON 17 - FRESH START PROCESS

for discharge of the debtor from the qualifying debts.

The Adjudicating Authority shall discharge the debtor from the following liabilities, namely:
a) penalties in respect of the qualifying debts from the date of application till the date of the discharge order;
b) interest including penal interest in respect of the qualifying debts from the date of application till the date of
the discharge order; and
c) any other sums owed under any contract in respect of the qualifying debts from the date of application till the
date of the discharge order.

The discharge order shall be forwarded to the Board for the purpose of recording an entry in the register referred to
in section 196. A discharge order shall not discharge any other person apart from the debtor from any liability in
respect of the qualifying debts.

STANDARD OF CONDUCT

Section 93 of the Insolvency and Bankruptcy Code, 2016 provides that the Resolution Professional shall perform his
functions and duties in compliance with the code of conduct provided under Section 208.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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 LESSON 17 - FRESH START PROCESS

FRESH START PROCESS

Inability of debtor to pay debt

Eligible to initiate fresh start process

Application to Debt Recovery Tribunal (DRT) with the relevant

information supported by affidavit either individually or through
Resolution Professional (Interim Moratorium starts)

Appointment of Resolution Professional

Examination of application by Resolution Professional and submission

of report to DRT with regard to acceptance or rejection of application
for fresh start process.

Order by DRT within 14 days of submission of report by Resolution

Professional

admission of rejection of
application application

Moratorium commences Moratorium ceases

Objection (if any) by creditor within 10 days from the date

of receipt of order by way of an application to Resolution
Professional

Examination of objection(s) by Resolution Professional

Application against decision(s) of Resolution Professional

by debtor or creditor to DRT within 10 days of decision of
Resolution Professional

Order of DRT

Acceptance of rejection of
application application
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

Preparation of final list of qualifying debt by Resolution

Forwarding of
Professional and submission of list to drt atleast 7 days
order to IBBI
before moratorium period comes to an end.

Discharge Order by DRT

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 LESSON 18 - GROUP INSOLVENCY

LESSON 18 - GROUP INSOLVENCY

INTRODUCTION
Companies in a corporate group are identified as separate legal entities under law. However, the prevalence of
corporate groups has thrown up special challenges requiring modifications to this principle of treating companies as
completely separate entities. However, courts in India also pierce the corporate veil to hold the parent company liable
for subsidiary companies. The Supreme Court in LIC v. Escorts, AIR 1986 SC 1370, (Para 321) held that “generally and
broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil,
or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be
evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither
necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since that must
necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned
conduct, the involvement of the element of the public interest, the effect on parties who may be affected etc.”

In Delhi Development Authority v. Skiper Construction, AIR 1996 SC 2005 the defendant company sought to defraud
bona fide purchasers of property by establishing several corporate entities. Finding that the entities were cloaks
behind which the members of the same family sought to defraud purchasers, the court pierced the corporate veil and
held the family members liable. It observed “...[when] the corporate character is employed for the purpose of
committing illegality or for defrauding others, the court would ignore the corporate character and will look at the
reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties
concerned.”

The separate legal personality of group companies is disregarded in many cases.

In this context, when a company/few companies belonging to a group is undergoing corporate insolvency resolution
process, the co-ordination of insolvency of different companies in a group are dealt globally through prescribed
regulatory framework resulting in reduction of cost and maximisation of value.
With the introduction of the Insolvency and Bankruptcy Code, 2016 (‘Code’), India moved to create a law that inter
alia consolidates the fragmented laws relating to reorganization, insolvency resolution and liquidation relating to
corporate persons. While the Code provides detailed provisions to deal with the insolvency of each corporate debtor
separately, it lacks a dedicated framework to deal with coordination of insolvency proceedings of different group
companies.
Thus, the insolvency of different companies belonging to the same group is dealt with through separate insolvency
proceedings for each company. However, in the insolvency resolution of debtor companies including companies of
Videocon, Era infrastructure, Lanco, Educomp, Amtek, Adel, Jaypee, Aircel special issues arising from their
interconnections with other group companies have come up, and a need has been felt to examine the desirability and
design of a framework dealing with issues arising in the insolvency of group companies.
Example of a group of companies that is viewed as a single economic entity-
B is a company engaged in the execution of construction contracts involving engineering, procurement and
construction projects. It is the holding company of several subsidiary companies by way of direct and indirect
investments. B holds more than 90% shareholding in all the subsidiary companies. B along with several of its
subsidiary companies have defaulted in their respective loans and CIRPs have been initiated for the same.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

Source: Report of the IBBI Working Group on Group Insolvency

The Code largely deals with the insolvency of each company through separate proceedings for each company but has
some provisions that recognise its interest in group companies.

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 LESSON 18 - GROUP INSOLVENCY

For instance:
 Sections 60(2) and 60(3) of the Code provide that the insolvency proceedings of a debtor company and its
guarantor would be dealt with by the same Adjudicating Authority. This may also enable linking of proceedings
in those cases where the debtor and guarantor are part of the same group of companies.
 Sections 18(f) and 36 of the Code give control of the shares of the subsidiary to the resolution professional and
liquidator of the parent company. The control rights given to the shareholders of a solvent company may be used
by the resolution professional or liquidator to obtain information from solvent group entities easily. Further, a
resolution plan of a parent company would deal with the assets of the company, which would include its shares
in subsidiary companies. A successful resolution applicant could also receive the control of these securities (based
on the specifics of the resolution plan).
 Some provisions in the Code target perverse behavior in group structures. The Code defines related party in
relation to corporate debtors to inter alia include holding subsidiary companies, companies in which directors or
managers have shareholding, companies controlling each other by virtue of contracts, companies with whom
there may be de facto association in the form of participation in policy making process, interchange of employees,
etc. Longer time-limits are prescribed for the application of avoidance provisions in case of transactions with
related persons, and prohibitions in sections 29A and 21 target the ability of related parties to submit a plan for
the resolution of the company or vote as part of the CoC. Even transactions with related parties during the
insolvency resolution period require approval of the CoC by virtue of section 28.

CONCEPT

How the term ‘Group” is defined?

UNCITRAL Model Law On Enterprise Group Insolvency (UNEGI)- Definitions
“Enterprise” means any entity, regardless of its legal form, that is engaged in economic activities and may be governed
by the insolvency law;
“Enterprise group” means two or more enterprises that are interconnected by control or significant ownership;
“Control” means the capacity to determine, directly or indirectly, the operating and financial policies of an enterprise;
The definition of “enterprise group” refers both to “control” and “significant ownership”. While the UNEGI defines the
term “control”, it leaves it to enacting States to consider defining the term “significant ownership” according to
domestic requirements, to avoid possible uncertainties and litigation.

UNCITRAL Legislative Guide on Insolvency Law

The glossary to Part III of the UNCITRAL Legislative Guide on Insolvency Law on ‘Treatment of enterprise groups in
insolvency’ (“UNCITRAL Guide”) defines an enterprise group as “two or more enterprises that are interconnected by
control or significant ownership”, with control being “the capacity to determine, directly or indirectly, the operating
and financial policies of an enterprise”

Recommendation of Cross Border Insolvency Rules/Regulations Committee on the Definition of Group (CBIRC)
In the group insolvency framework under the Code, a broad and inclusive definition of ‘group’ should be provided so
as to include a large number of corporate debtors within the ambit of the framework. The definition of ‘group’ may
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

be based on the criteria of control and significant ownership. This definition should be applicable to all entities that
fall within the definition of a ‘corporate debtor’ under the Code, i.e., companies and limited liability partnerships. The
group insolvency framework may not apply to financial service providers notified under Section 227 of the Code.

Recommendations on the Definition of Group

“group” means two or more corporate debtors that are interconnected by control or significant ownership;

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 LESSON 18 - GROUP INSOLVENCY

“control” includes the right to appoint majority of the directors or other key managerial personnel entitled to manage
the affairs of the body corporate or to control the management or policy decisions exercisable by a person or persons
acting individually or in concert, directly or indirectly, including by virtue of their shareholding, management rights,
ownership interest, shareholders agreements, voting agreements, articles of association, limited liability partnership
agreements or in any other manner;
“significant ownership” includes the right to exercise twenty-six per cent or more voting rights;

Overview of the Definition of a Group Prescribed by the UNCITRAL Legislative Guide, MLEGI and the Working Group

MLEGI UNCITRAL Legislative Guide Working Group

Applies to ‘enterprise groups’, Applies to ‘enterprise groups’, which Applies to ‘corporate groups’,
which includes a broad set includes a broad set of organisations which only includes corporate
of organisations and not just and not just corporations. debtors under the Code.
corporations.
Enterprise group means two or more Enterprise group means two or more Corporate group includes holding,
enterprises that are interconnectedby enterprises that are interconnected by subsidiary and associate companies
control or significant ownership. control or significant ownership. as defined in the Companies Act,
2013.
Control is the capacity to determine, Control is the capacity to determine,
directly or indirectly, theoperating and directly or indirectly, the operatingand The Adjudicating Authority may
financial policies of an enterprise. financial policies of an enterprise. include other companies under this
definition if they “are so intrinsically
linked as to form part of a ‘group’
in commercial understanding … as
long as it can be demonstrated that
this will result in maximisation of
value of the insolvent company
without destroying the value of the
company being included, so that
there is overall value
maximization.”
Example of a group of companies with significant interdependence

The group companies of A are engaged in different stages of the supply chain in the automotive sector and non--
automotive sector. For example, AA and AB are engaged in forging, AC and AD are involved in casting, AE, AF, AG, and
AH are involved in machining, while A is engaged in machining and production of the final products which are shipped
to the end-customers.

Significantly, while more than 10% of the total sales of the A Ltd. group are made to the entities which are part of the
same group, an overwhelming percentage of the total raw materials purchased by the group are made from within
the group. Further, the raw materials and essential components required for making the end products sold by A are
procured from within the group as per the directions of the end-customer and the same cannot be sourced from other
suppliers in a short period of time as they are based on the customized products ordered by the end-customers.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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 LESSON 18 - GROUP INSOLVENCY

Machining:
Forging: Casting:

End Customers

HOW GROUP INSOLVENCY IS DEALT IN DIFFERENT COUNTRIES?

Globally, Group Insolvencies are either dealt by way of Procedural Co-ordination or Substantive Consolidation.
“Procedural coordination” refers to coordination of the administrations of two or more insolvency proceedings in
respect of enterprise group members. The European Union (EU) and Germany have recently amended their insolvency
legislation to provide for treatment of group insolvencies through Group Coordination. It includes aspects such as
procedure for co-ordination amongst Court, appointment of common Court, appointment of common administrators,
co-ordination amongst administrators, group communication process, appointment of coordinator, his independence
and so on.
“Substantive consolidation” is the treatment of the assets and liabilities of two or more enterprise group members as
if they were a single insolvency estate. Countries like Australia have provisions as part of their Insolvency Legislations
for Substantive Consolidation in way of “pooling” of assets of the Group Companies.
Some countries like the United States have handled various insolvencies by Substantive Consolidation even in the
absence of any specific provisions for the same. Worldwide, substantive consolidation is triggered as an exceptional
tool in situations such as assets and liabilities of entities are inseparable, creditors perception as a group rather than
a single entity, administrative benefits of consolidation, unity of ownership etc.. In a number of significant insolvencies
like WorldCom and Nortel, the U.S. and Canadian Courts have used a blend and variations of both these
methodologies, by means of Partial Consolidation.
Broadly speaking, “Group Insolvencies” are dealt either through some defined legislative framework or through the
judicial precedents, i.e., the judicial dicta/judgments of Courts of law. The following procedures have been prescribed
in regard to “Group Insolvency”:
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

1. Substantive Consolidation;
2. Partial Consolidation;
3. Procedural Co-ordination.

UNCITRAL MODEL LAW ON ENTERPRISE GROUP INSOLVENCY

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 LESSON 18 - GROUP INSOLVENCY

The purpose of this Law is to provide effective mechanisms to address cases of insolvency affecting the members of
an enterprise group, in order to promote the objectives of:
(a) Cooperation between courts and other competent authorities of this State and foreign States involved in those
cases;
(b) Cooperation between insolvency representatives appointed in this State and foreign States in those cases;
(c) Development of a group insolvency solution for the whole or part of an enterprise group and cross- border
recognition and implementation of that solution in multiple States;
(d) Fair and efficient administration of insolvencies concerning enterprise group members that protects the
interests of all creditors of those enterprise group members and other interested persons, including the
debtors;
(e) Protection and maximization of the overall combined value of the assets and operations of enterprise group
members affected by insolvency and of the enterprise group as a whole;
(f) Facilitation of the rescue of financially troubled enterprise groups, thereby protecting investment and
preserving employment; and
(g) Adequate protection of the interests of the creditors of each enterprise group member participating in a group
insolvency solution and of other interested persons.

LEGAL FRAMEWORK FOR GROUP INSOLVENCY: A CROSS-COUNTRY COMPARISON*

Serial Country Particulars

Number
1 USA  The Courts, generally, find authority for the remedy in the broad powers of “Equity”
conferred under section 105(a) of the Bankruptcy Code, which authorizes the Court to
“issue any order, process, or judgment that is necessary or appropriate to carry out
the provisions” of the Bankruptcy Code.
 US Bankruptcy Courts developed the Factor Test or the Checklist Approach for the
application of Substantive Consolidation.
2 Austria  There is no concept of “Group Insolvency” under the Austrian Insolvency Law; each
legal entity is to be assessed individually. The EU Insolvency Regulations and Rules on
cooperation within Group Insolvencies have been included in the Insolvency Code.
 There is a completely new detailed legal framework on the cooperation and
coordination of cross-border insolvency proceedings over the estate of members of a
Group of Companies.
3 Australia  The Principal legislation governing insolvency in Australia is the Corporations Act,
2001. Under section 588V of the Corporations Act, 2001, a holding company may, in
certain circumstances, be held liable for the insolvent trading of its subsidiary.
 There is no formal legal mechanism for initiating proceedings on a Group basis. Once
insolvency proceedings have been commenced in respect of individual group
companies, "pooling" of those proceedings may be available in certain circumstances.
INSOLVENCY AND BANKRUPTCY LAW

 Australian Courts sanction the use of pooling arrangements for Groups in

SHUBHAMM SUKHLECHA (CA, CS, LLM)

administration proposing to carry out a pooled DOCA (Deed of Company

Arrangement).

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4 Canada  The legislations that deal with “Insolvency” are Bankruptcy and Insolvency Act (BIA)
and The Companies' Creditors Arrangement Act (CCAA).
 As per the CCAA, the Court will allow a consolidated plan of compromise and
arrangement to be filed for two or more related companies in appropriate
circumstances.
 Case-law development led to three factor approach to decide whether consolidation
would be the appropriate solution or not. The Court will consider whether
consolidation is fair and reasonable based on the facts and circumstances of each case.
5 Brazil  The current Brazilian legislation on Corporate Insolvency Law is the Federal Law
11,101. It covers three types of court proceedings: judicial reorganisation, expedited
reorganisation and bankruptcy liquidation.
 An analysis of requests for Substantive Consolidation filed before the Brazilian Courts
reveals that, in majority of cases, such requests are based on the companies being part
of the same economic group; the existence of a common management of the
companies; and the existence of cross- guarantees among the requesting companies.
6 European  Regulation (EU) 2015/848 of the European Parliament and of the Council on the
Union subject of “Insolvency Proceedings” is the legislation governing Group Insolvency.
Chapter V of the Regulations (Article 56 to Article 77) talks about Insolvency
Proceedings of Members of Group Companies.
 The Regulations provide for a detailed framework of Group Procedural Co-ordination.
 The European Courts have ruled that the European Insolvency Regulation can be
interpreted, under certain conditions, to allow for insolvency proceedings of a member
state to cross borders (to a certain extent) and include another company from another
member state.
7 Netherlands  The Dutch Bankruptcy law recognizes the Legal Entity principle of a corporate, and thus
requires that the assets of a legal entity are to be disposed of for the benefit of its own
creditors only. If a Group (of companies) files for insolvency, each member company
shall be addressed as a separate case.
 The Dutch Supreme Court has held that, in cases wherein separate administration of
the estates of separate entities (insolvent) is onerous, there can be a joint
administration of such estates. The European Insolvency Regulation obligates the
Dutch Courts to automatically recognize insolvency proceedings opened elsewhere in
the EU.
8 Germany  The German Legislator had on 9th March 2017 introduced the concept of Group
Insolvency into the German Insolvency law. German Insolvency law allows insolvency
proceedings to be initiated in respect of companies within a Corporate Group at a
single German Insolvency Court and/or to be administered by a single Insolvency
Administrator.
 The Regulations have provided for some key innovations, viz., (i) a Group venue; (ii)
the option to appoint the same person as (Group) Insolvency Administrator/receiver;
and (iii) Group Coordination proceedings.
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SHUBHAMM SUKHLECHA (CA, CS, LLM)

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9 China  The governing legislation is The Enterprise Bankruptcy Law of the People’s Republic of
China (Effective from 1st June, 2006).
 The minutes of National Court Work Conference on Bankruptcy Trials in Shenzhen,
Guangdong Province have become guidelines on the subject of substantive
consolidation and the rarity with which it should be used in China.
 There are no circumstances in which a parent or affiliated Corporation assumes the
responsibility for the liabilities of subsidiaries or affiliates. In practice, however, the
parent Corporation should bear the responsibility for its subsidiary, if such a subsidiary
is not an independent entity, or it has conducted an abnormal transaction.
 Combining of bankruptcy procedures of the parent company and its subsidiaries is
permitted in general practice. Under such circumstances, the assets and liabilities
belonging to the companies may be pooled for the purpose of distribution of their
assets.
10 UK  Every member of a Group is treated as a distinct legal person as far as its assets and
liabilities are concerned.
 There is a common practice, however, to appoint the same administrator or liquidator
with respect to multiple companies within a Group which amounts to elements of
procedural coordination.
 As each Group Company has a distinct legal personality, there is no
requirement/obligation on a company's affiliate to proceed under the same type or
location of insolvency proceeding as other Group members.

EXCERPTS FROM REPORTS ON GROUP INSOLVENCY

Report of the Working Group on Group Insolvency (IBBI Working Group Constituted in January 2019, Submitted its
Report on September 23, 2019)
Broad Recommendations
(1) The law may envisage a framework to facilitate insolvency resolution and liquidation of companies belonging to
a group. The framework may be enabling, and may be voluntarily used by relevant stakeholders of the company.
Only provisions relating to communication, cooperation and information sharing may be mandatory for insolvency
professionals, Adjudicating Authorities and committees of creditors (“CoCs”) of the companies which belong to a
group and have been admitted into CIRP.
(2) The law may enable phased implementation of the framework. The first phase may facilitate the introduction of
procedural co-ordination of only domestic companies in groups and rules against perverse behaviour. Cross-
border group insolvency and substantive consolidation could be considered at a later stage, depending on the
experience of implementing the earlier phases of the framework, and the felt need at the relevant time.
(3) For the purposes of this framework, a ‘corporate group’ may include holding, subsidiary and associate companies,
as defined under the Companies Act, 2013. However, an application may be made to the Adjudicating Authority
to include companies that are so intrinsically linked as to form part of a ‘group’ in commercial understanding, but
are not covered by the definition of corporate group above, as well. Procedural coordination mechanisms under
this framework may be applicable only to those group companies which have defaulted, and which are covered
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

by the Code for the purpose of insolvency resolution or liquidation. However, rules against perverse behaviour
may be applicable to all group companies, regardless of their solvency.
(4) The framework may provide for procedural coordination in the first phase as under:
a. The framework may have the following elements of procedural co-ordination:
i. Joint application
ii. Communication, cooperation and information sharing

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 LESSON 18 - GROUP INSOLVENCY

Single insolvency professional and single Adjudicating Authority

iii.
iv. Creation of a group creditors’ committee, and
v. Group coordination proceedings.
b. A joint application may be made against all corporate debtors who have committed a default and who form
part of a group. Other procedural coordination mechanisms (listed above) may be made available to those
companies who form part of a group, and have been admitted into CIRP.
c. While all other elements of procedural co-ordination may be voluntary, cooperation, communication and
information sharing among insolvency professionals, CoC and Adjudicating Authorities may be mandatory for
companies that have been admitted into CIRP.

In addition to cooperation, communication and information sharing, other elements of procedural coordination may
be enabled as under:
 Joint Application for the insolvency resolution: The law may enable a single application to be filed to
commence the insolvency resolution processes of multiple companies in a group, before any Adjudicating
Authority that has jurisdiction over any one of the companies.
 Single insolvency professional and single Adjudicating Authority: The law may enable and encourage
appointment of a single insolvency professional and designation of a single Adjudicating Authority for
resolution of multiple companies admitted into CIRP, except where there are issues such as conflict of interest,
lack of sufficient resources (in case of insolvency professionals) or where stakeholders would get adversely
affected (in case of Adjudicating Authorities) etc.
 Group creditors’ committee: The law may, at the option of the CoCs of participating companies, enable the
creation of a group creditors’ committee to support individual CoCs, and not supplant them.
 Group coordination proceedings: The law may enable group co-ordination proceedings, at the option of the
CoCs of the companies under CIRP. Group coordination proceedings may be governed by a Framework
Agreement among the CoCs of the participating CDs. It may entail appointment of a “group coordinator” who
would propose a strategy for the synchronised resolution of insolvency of the group companies. This strategy
could propose invitation of a common expression of interest, resolution plan, etc. At this stage, a company
may opt out of group coordination proceedings by a vote of the majority of its CoC. Once group coordination
proceedings are initiated, one Adjudicating Authority (chosen as per the Framework Agreement) would have
jurisdiction over the insolvency proceedings of each of the companies and the group coordination proceedings.
Further, these companies may be allowed to seek an extension of the CIRP period by another ninety days to
account for the additional time these proceedings may take to enable the value maximising resolution.

d. Procedural coordination may be allowed at any stage of the insolvency resolution or liquidation process for
companies.

e. Procedural co-ordination at the resolution process stage may not necessarily continue to the stage of
liquidation process. Such coordination at liquidation stage may be allowed on a fresh application for the same.
A single insolvency professional may be appointed, a single Adjudicating Authority may be designated and
group coordination proceedings may be commenced even at the liquidation stage.
(5) The framework may have certain rules against perverse behaviour. While the provisions enabling the avoidance
of certain transactions and imposition of liability for wrongful and fraudulent trading may broadly be sufficient to
capture intra-group transactions that are value destructive, the framework may permit the Adjudicating Authority
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

to subordinate the claims of other companies in a group in exceptional circumstances of fraud, etc.

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ADVANTAGES AND CHALLENGES OF GROUP INSOLVENCY

Advantages
 Promotion of information symmetry: If insolvency law enables the exchange of information between the
stakeholders of different companies, it may enable better assessment of viability and increase the chances of
resolution. This exchange of information may also reduce information asymmetry amongst stakeholders.

 Reduction in costs of insolvency proceedings: Where the insolvency of different group companies is dealt with
entirely in isolation, there is a likelihood of unnecessary duplication of work if different Benches of Adjudicating
Authority, insolvency professionals and creditors individually appreciate and consider the same or similar facts in
order to piece together a complete picture. The resultant delay and clogging up of judicial infrastructure may have
long-term negative consequences. Further in some cases groups are so interlinked, that it would be costly to
disentangle their inter-linkages. The creation of a group insolvency framework may reduce these costs.

 Maximization of value: An insolvency framework that recognises special issues relating to group companies is
likely to increase the efficiency of processes and maximize value in two ways, one, by reducing information
asymmetry and costs of administering insolvencies, and second, by enabling the resolution or liquidation of
intrinsically linked assets together, thereby maximising synergies and not forcing a value destructive separation.

 Reduction in costs of capital: To the extent an insolvency framework respects the expectations of stakeholders,
it is likely to ex-ante reduce the cost of capital for the group since stakeholders would not have to adjust for a
change in their position purely due to the initiation of insolvency proceedings. Further, to the extent that
insolvency law effectively targets transactions between group companies that unfairly transfer value from one
entity to another, it is likely to reduce monitoring costs for stakeholders, and further bring down the cost of capital.

 Increasing certainty for stakeholders and saving judicial time: Where the insolvency framework clearly lays down
rules to facilitate the insolvency resolution and liquidation of companies in a group, stakeholders have certainty
on the manner in which they may be applied and also saves judicial time.

For example, nearly 100% of all the members of the CoCs are common for all the four corporate debtors. While
separate proceedings were opened for these corporate debtors, all of them were being heard by the same NCLT bench
and were initiated by the same financial creditor. The same insolvency professional was appointed as the resolution
professional for all four companies. Joint meetings of the CoCs were conducted for all the corporate debtors. This
saved time and reduced the costs involved and resulted in swifter and more cost-efficient decision making at the
meetings of the CoC. The time and costs could have been reduced further if procedural coordination mechanisms such
as a joint application process and a common public announcement (as discussed) were also permitted in the law.

Challenges
 Potential for costs of capital to increase: If the basic principle of asset partitioning is disregarded without
justification, in those cases where the companies themselves are run distinctly without regard to each other’s
businesses and activities, creditors and the stakeholders of one company will have to monitor the activities of the
entire group. The value of lending to one company will have to be balanced against the cost of having to monitor
all the companies in the group. This may disincentivise lenders sufficiently and they may not be willing to extend
credit to companies within a group. This may be of special concern where group companies are incorporated
precisely because there is a need for a separate legal entity whose assets are partitioned (e.g. in the case of special
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

purpose vehicles(“SPVs”)), with limited inter-linkages between them. If a majority of the groups are structured in
this manner, and the law disregards the separate legal personality of companies in such groups without
justification, it may increase the cost of doing business.

 Potential for expenses of the framework to reduce recovery: A framework dealing with the insolvency of group
companies may itself require certain expenses to be incurred. For instance, if another professional is hired to
assist in the creation of a group strategy for the resolution of insolvency group companies, it may require expenses

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for such a professional to be incurred. If the framework imposes expensive requirements that are not offset by
reduction of costs for stakeholders, it may reduce recoveries for stakeholders.

 Potential for unfair capture of value by some stakeholders: Some stakeholders consulted by the WG suggested
that if the framework for group insolvency deviates from the principle of asset partitioning unjustifiably, it may
result in dominant lenders lowering their credit and monitoring standards and capturing value in group entities
where the primary monitoring burden has been carried by other stakeholders.

REPORT OF CROSS BORDER INSOLVENCY RULES/REGULATIONS COMMITTEE (CBIRC) ON GROUP INSOLVENCY

(DECEMBER 2021)

Summary of Recommendations
i. A group insolvency framework that is voluntary, flexible and enabling in nature should be provided under the
Code. Such a framework may be introduced in phases. In the first phase, only provisions governing domestic
group insolvency may be enacted.
ii. The UNCITRAL Model Law on Enterprise Group Insolvency (MLEGI) may not be adopted in India at present, and
its adoption may be considered after enactment of single entity cross border insolvency laws and based on
learnings from its implementation.
iii. Jurisprudence on substantive consolidation, i.e., pooling of assets and liabilities of an insolvent group, is already
developing under the Code through case law. This is a remedy resorted to in exceptional circumstances and
provisions governing substantive consolidation may not be provided in the Code at present. The need for such
provisions may be contemplated at a later stage, on the basis of practice and jurisprudence evolved in this regard.
iv. In the group insolvency framework under the Code, a broad and inclusive definition of ‘group’ should be provided
so as to include a large number of corporate debtors within the ambit of the frame- work. The definition of ‘group’
may be based on the criteria of control and significant ownership. This definition should be applicable to all
entities that fall within the definition of a ‘corporate debtor’ under the Code, i.e., companies and limited liability
partnerships. The group insolvency framework may not apply to financial service providers notified under Section
227 of the Code.
v. The group insolvency framework under the Code should only apply to corporate debtors in respect of whom a
corporate insolvency resolution process or liquidation process is ongoing. The law shall not apply to solvent
members of the group.
vi. A list of procedural coordination mechanisms should be available under the group insolvency framework. These
are discussed below.
vii. Filing of joint applications for initiation of corporate insolvency resolution proceedings against multiple corporate
debtors belonging to the same group may be permitted. Such applications may be filed with an Adjudicating
Authority that has territorial jurisdiction over any one of the corporate debtors in respect of whom such joint
application is being filed. Although filing jointly may be permitted, the application form for each corporate debtor
should be separate.
viii. All proceedings related to corporate debtors belonging to a group may take place under the same Adjudicating
Authority. To give this effect, all pending applications and proceedings under the Code in respect of a group
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

member may be transferred to the NCLT that is the first to admit an application for triggering an insolvency
resolution process in respect of any corporate debtor belonging to the group. All new applications in respect of
any group member should also be filed in such NCLT.
ix. A common insolvency professional may be appointed as the resolution professional or liquidator of corporate
debtors that belong to the same group. An insolvency professional should refuse taking such appointment if she
believes that there are conflicts of interest which may affect her functions. She may approach the Adjudicating

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 LESSON 18 - GROUP INSOLVENCY

Authority for suitable directions if conflicts arise after her appointment.

x. A group CoC may be formed with adequate representation from CoCs of all group members (outside group
coordination proceedings in points xi-xviii). This may be at discretion of the CoCs and its constitution and
formation may be subject to negotiation amongst parties. The group CoC (outside of a group coordination
proceeding) may only provide procedural assistance and should not be tasked with taking decisions that affect
the substantive rights and obligations of the parties, which right shall continue to be available to the CoCs of the
relevant group members.
xi. The CoCs and insolvency professionals appointed in respect of corporate debtors belonging to the same group
should mandatorily be required to cooperate, coordinate and share information with each other.
xii. The law should enable group coordination proceedings for corporate debtors belonging to the same group and
undergoing a corporate insolvency resolution or liquidation process under the Code. A group coordination
proceeding may be opened on application made by two or more CoCs of corporate debtors belonging to a group.
If the corporate debtor is in liquidation, the application may be made by the liquidator. Such applications will be
made to the Adjudicating Authority. The Adjudicating Authority may open the group coordination proceedings
and appoint a group coordinator (as proposed in the application and subject to eligibility criteria). The proceedings
will run alongside the separate insolvency or liquidation proceedings of the corporate debtors.
xiii. Participation of a corporate debtor in the group coordination proceeding should be voluntary. The CoCs may have
flexibility to opt-in to the group coordination proceedings until 30 days after its opening. Any opt-ins after such
time may be permitted with the approval of the participating CoCs and liquidators. For such approval, each CoC
would have to vote in favour of such opt in by at least 50% of each of their voting shares. The participating group
members may opt out of the group coordination proceedings at any time until a group strategy has been
approved by their respective CoC.
xiv. The group coordinator shall constitute a group CoC consisting of suitable representatives from CoCs of all
participating group members. The group CoC (in group coordination proceeding) may perform functions
delegated to it by separate CoCs. However, the power to approve a resolution plan shall not be permitted to be
delegated to the group CoC.
xv. The group coordinator will conduct the group coordination proceedings and develop a group strategy. A group
strategy may provide various combinations of measures that synchronise the insolvency resolution or liquidation
proceedings of the participating corporate debtors. Such measures may be different for different companies
included in the strategy. The group coordinator will also assist the resolution professionals, liquidators and CoCs
of the corporate debtors so as to enable effective coordination amongst them.
xvi. A group strategy should require the approval of all participating CoCs by 66% of each of their voting shares
respectively. Where a corporate debtor participating in a group coordination proceeding is undergoing
liquidation, the liquidator should decide whether to approve the group strategy for the corporate debtor it
represents. Once approved, the group strategy shall be filed with the Adjudicating Authority and shall be binding
on all parties to the group strategy.
xvii. A group coordination proceeding shall terminate if the group coordinator applies for a termination order, which
may be on the grounds that – (a) the group strategy has been approved and full implemented; (b) the CoCs and
liquidators have approved such termination by requisite majority; (c) the CoCs and liquidators have failed to
approve a group strategy and the group coordinator is of the opinion that it is not feasible for participating group
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

members to agree on a group strategy.

xviii. The costs of conducting group coordination proceedings should form part of the insolvency resolution or
liquidation process costs of the participating group members. Further, where group coordination proceedings are
opened, an additional 90 days may be added to the time period for completion of the insolvency resolution
process for the participating corporate debtors.

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 LESSON 18 - GROUP INSOLVENCY

xix. Specific provisions to deal with perverse behaviour may not be required as provisions dealing with avoidance
actions and fraudulent or wrongful trading under the Code may be sufficient. Detailed provisions targeting
perverse behaviour in group insolvency scenarios should be legislated based on practice developed under the
Code in due course.
xx. Effective capacity building measures and increase in use of technology during implementation will bolster the
efficiency of the group insolvency framework.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

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 LESSON 18 - GROUP INSOLVENCY

CASE LAWS

State Bank of India & Anr. v. Videocon Industries Ltd. & Ors
In State Bank of India & Anr. v. Videocon Industries Ltd. & Ors., the insolvency proceedings of 13 out of 15 companies
belonging to the same group were ordered to be consolidated based on the following set of factors: -

(i) common control;

(ii) common directors;

(iii) common assets;

(iv) common liabilities;

(v) inter-dependence of the companies;

(vi) interlacing of finance;

(vii) pooling of resources;

(viii) co-existence for survival;

(ix) intricate links between companies;

(x) intertwined accounts;

(xi) inter-looping of debts;

(xii) singleness of economic of units;

(xiii) common financial creditors.

Due to the lacuna in the Code, the Adjudicating Authority relied on jurisprudence in jurisdictions like the US and UK. A
resolution plan has been approved for these companies by the National Company Law Tribunal (Mumbai) (“NCLT”)
vide a recent order dated 8 June 2021.

Venugopal Dhoot v. State Bank of India & Ors.CA- 1022(PB)/2018- decision dated 24.10.2018
In Venugopal Dhoot v. State Bank of India & Ors. multiple companies of the Videocon group were being put through
insolvency resolution processes. In this case, parties sought that all matters pertaining to the insolvency resolution of
different Videocon companies be dealt with by the same NCLT and that there be consolidation of separate proceedings
of multiple Videocon companies to treat “the corporate insolvency resolution process as one in respect of all of these
companies”. The Principal Bench of the NCLT ordered that all the matters regarding the insolvency resolution
processes of these different companies be dealt with by the same bench of the NCLT for the purpose of “avoiding
conflicting orders and facilitating the hearing” of these matters. The bench also observed that the relevant NCLT would
be empowered to decide whether different proceedings may be consolidated.

Chitra Sharma v. Union of India, W.P. (Civil) No(s).744/2017- decision dated 11.09.2017
In Chitra Sharma v. Union of India, where insolvency proceedings had been initiated against Jaypee Infratech Ltd., but
homebuyers had entered into contracts with both Jaypee Infratech Ltd. and its parent company Jai Prakash Associates
Ltd., the Supreme Court ordered that the parent company which was not subject to the insolvency proceedings deposit
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

a sum of INR two thousand crores before the court.

Edelweiss Asset Reconstruction Company Limited v. Sachet Infrastructure Pvt. Ltd. & Ors, Company Appeal (AT)
(Insolvency) No. 377 of 2019]
In Edelweiss Asset Reconstruction Company Limited v. Sachet Infrastructure Pvt. Ltd. & Ors., 20 the Appellate Authority
held that “group insolvency proceedings were required to be initiated” against five companies that had been working

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 LESSON 18 - GROUP INSOLVENCY

as a joint consortium to develop a residential plotted colony. To enable successful development of this colony, the
Appellate Authority ordered that “simultaneous ‘Corporate Insolvency Resolution Processes’ should continue against
them under the guidance of same ‘Resolution Professional’” who should run the processes so that they are “completed
in one go by initiating a consolidated ‘Resolution Plan(s)’ for total development”.

Bikram Chatterji v. Union of India WRIT PETITION (CIVIL) NO. 940 OF 2017 decided on 7.11.2022
In Bikram Chatterji v. Union of India, homebuyers in projects developed by different companies of the Amrapali group
filed a Writ Petition before the Supreme Court in order to protect their interests in the wake of the insolvency of
different Amrapali group companies. The Supreme Court in these proceedings dealt with the group as a whole. Given
the nature of the transactions between the group companies, the Court also ordered that the properties of all forty
group companies in the Amrapali group be attached and the bank accounts of all companies and their directors be
frozen.
INSOLVENCY AND BANKRUPTCY LAW

SHUBHAMM SUKHLECHA (CA, CS, LLM)

18.14