1. INSOLVENCY AND BANKRUPTCY CODE, 2016 SERIES 2 of 6
Initiation of Corporate Insolvency Resolution Process (‘CIRP’)
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NEW DELHI
March 10, 2017

2. ABBREVIATIONS
AA – Adjudicating Authority
Act – Companies Act, 2013
Board – Insolvency and Bankruptcy Board of India
CIRP – Corporate Insolvency Resolution Process
Code – Insolvency and Bankruptcy Code, 2016
IP – Insolvency Professional
IRP – Interim Resolution Professional
RP – Resolution Professional

3. QUESTION 1 How may a CIRP be initiated by a financial creditor? ANSWER
To recap, A CIRP may be initiated by financial creditor, operational creditor and corporate applicant.
A financial creditor may, itself or jointly with other financial creditors, file an application along with relevant documents for initiating CIRP against a corporate debtor before the AA when a default has occurred.
Note:
A default includes a default in respect of financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor.

4. QUESTION 2 How may a CIRP be initiated by an operational creditor?
ANSWER
Delivery of a demand notice/invoice demanding payment of the amount involved in the default to the corporate debtor.
Upon expiration of 10 days from the date of delivery of the notice or invoice demanding payment, if the operational creditor does not receive the payment or notice of the dispute, the operational creditor may file an application along with the relevant documents before the AA for initiating CIRP.

5. QUESTION 3 How may a CIRP be initiated by a corporate applicant?
ANSWER
An application may be filed to the AA along with the corporate debtor’s books of accounts, other prescribed documents and the name of a person proposed to be appointed as the interim resolution professional.
A corporate applicant may be a corporate debtor, or a member or partner of the corporate debtor who is authorised to make an application for CIRP under the constitutional document of the corporate debtor, or an individual who is in charge of managing the operations and resources of the corporate debtor, or a person who has the control and supervision over the financial affairs of the corporate debtor.

6. QUESTION 4 When is the CIRP stated to have commenced? ANSWER
The CIRP is stated to have commenced as on the date of admission of the application by the AA i.e., the insolvency commencement date.

7. QUESTION 5
What happens after an application for initiation of CIRP is filed with the AA?
ANSWER
The AA may by an order either admit the application or may reject the application.
When an application is admitted the AA shall:
Declare a moratorium;
Make a public announcement for initiation of CIRP;
Call for submission of claims; and
Appoint an interim resolution professional (‘IRP’).
Note:
In case the application for CIRP is made by the operational creditor and no proposal is made for an IRP, the AA shall make a reference to the Board for recommendation of an IP who may act as an IRP.
A "resolution professional", for the purposes of CIRP, means an insolvency professional appointed to conduct the corporate insolvency resolution process and includes an interim resolution professional.
An "insolvency professional" means a person enrolled under section 206 with an insolvency professional agency as its member and registered with the Board as an insolvency professional under section 207 of the Code

8. QUESTION 6
What is the timeline required to be followed once CIRP is filed with AA?
ANSWER
AA shall appoint IRP for a term of 30 days, within 14 days from the insolvency commencement date.
IRP shall constitute a committee of creditors and call for the first meeting of the committee of creditors. The first meeting of the committee of the creditors shall be held within 7 days of the constitution of the said committee.
Moratorium period shall last from the date of order passes by the AA, till the completion of CIRP. In the event, the AA approves the resolution plan or passes an order for liquidation of corporate debtor, the moratorium shall cease to have effect from the date of such approval or liquidation order.

9. QUESTION 7 What is the purpose of declaring a moratorium? ANSWER
The purpose of the moratorium is to ensure that efforts are focused on keeping the corporate debtors assets together during the CIRP, facilitating orderly completion of the processes envisaged during the CIRP, and ensuring that the company may continue as a going concern.
The moratorium also ensures that multiple proceedings are not taking place simultaneously and helps obviate the possibility of potentially conflicting outcomes of related proceedings and further ensures that the resolution process is a collective one.
It shall prohibit the following;
institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;
transferring, encumbering, alienating or disposing of any assets or any legal right or beneficial interest by the corporate debtor

10. QUESTION 7
any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the SARFAESI Act, 2002
the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.
Supply of essential goods and services to the corporate debtor shall not be terminated/suspended or interrupted during the moratorium period.
Note:
The liquidator with prior approval of AA has the power to institute or defend any suit, prosecution or other legal proceeding, civil or criminal in the name of or on behalf of corporate debtor.
The following is surmised from the cases below:
The prohibition on ‘institution of suits or continuation of pending suits or proceedings against the corporate debtor’ during the moratorium
will only apply to civil proceedings, which have a bearing in so far as the winding-up is concerned;
will not limit the powers of the criminal court to entertain criminal prosecution;

11. QUESTION 7
will not limit the powers of an income tax proceeding under the Income Tax Act; and
shall not apply in case of applicability of provisions of any special Act.
Jaswantrai Manilal Akhaney v. The State of Bombay (AIR 1956 SC 575)
“ This section does not purport to impose any limitations on the powers of a criminal court to entertain a criminal prosecution launched in the ordinary course under the provisions of the Code of Criminal Procedure. Where a prosecution has to be launched in the name of, or on behalf of, the company, it naturally becomes the concern of the Judge to see whether or not it was worthwhile to incur expenses on behalf of the company and therefore, the section requires the sanction of the Judge before the liquidator can undertake the prosecution or defence in the name of and on behalf of the company.”
(Reference is made to 179 of Companies Act, 1913 which is corresponding to Section 447 of Companies Act, 1956; also corresponding to Section 278 of the Companies Act, 2013)

12. QUESTION 7
S. V. Kondaskar, Official Liquidator and Liquidator of the Colabo Land and Mills Co. Ltd. v. V. M. Deshpande, ITO (AIR 1972 SC 878)
"The expression 'other legal proceeding' in sub-section (1) and the expression 'legal proceeding' in sub-section (2) of Section 446 of the Companies Act convey the same sense and the proceedings in both the subsections must be such as can appropriately be dealt with by the winding up court. The Income Tax Act is a complete code and it is particularly so with respect to the assessment and reassessment of Income Tax. The fact that after the amount of tax payable by an assessee has been determined or quantified its realisation from a company in liquidation is governed by the Act because the Income Tax payable also being a debt has to rank pari passu with other debts due from the company does not mean that the assessment proceeding for computing the amount of tax must be held to be such other legal proceedings as can only be started or continued with the leave of the liquidation court under Section 446 of the Act. The liquidation court cannot perform the functions of Income Tax Officers while assessing the amount of tax payable by the assessees even if the assessee be the company which is being wound up by the court."

13. QUESTION 7
In Indorama Synthetics (I) Ltd vs State Of Maharashtra, Criminal Writ Petition No of 2010, MANU/MH/0692/2016
“The Bombay High Court relied on the decision of the Apex Court in the case of S.V. Kondaskar and reaffirmed the view that the expression "legal proceedings" or "other legal proceedings" for the purpose of Sections 442 and 446 of the Companies Act, 1956 must be read ejusdem generis with the expression “suit” and can mean only civil proceedings which have a bearing in so far as the winding-up is concerned, namely, realization of the assets and discharge of liabilities of the Company. Hence, the proceedings under Section 138 of Negotiable Instruments Act, 1881 which are in the nature of a criminal complaint and not directly against the assets of the Company, cannot be included in the terms "suit or other legal proceedings", as used in Section 446(1) of the Companies Act, 1956.”

14. QUESTION 8 What are the duties of the IRP? ANSWER
The IRP shall have the following functions and duties;
Management of affairs of the corporate debtor – powers of the Board of Directors or the partners of the of the corporate person, as the case may be, shall stand suspended and may be exercised by the IRP;
Constitute the committee of creditors after collating of claims and determining the financial position of the corporate debtor;
Give notice of the first meeting of the committee of creditors to: members of the committee of creditors, members of the suspended Board of Directors or the partners of the corporate person, as the case may be, and to the operational creditors or their representatives if the amount of their aggregate dues is not less than 10% of the debt; and
To perform such other duties as may be specified by the Board.

15. QUESTION 9 What is the constitution of the committee of creditors?
ANSWER
The committee of creditors shall comprise all the financial creditors of the corporate debtor; provided that a related party to whom a financial debt is owed by the corporate debtor shall not have a right of representation, participation or voting at meeting of the committee of creditors. Where there are no financial creditors, the committee of creditors shall comprise such persons to exercise such functions as may be determined by the Board.

16. QUESTION 10 When and how is the RP appointed? ANSWER
The RP is appointed at the first meeting of the committee of creditors, by a majority vote of 75% of the voting share of the financial creditors. The committee of creditors may either appoint the IRP as the RP or may replace the IRP.
Note:
The committee of creditors may meet in person or by such other electronic means as may be specified. [Refer to Chapter IV of the Information Technology Act, 2000 i.e., attribution, acknowledgement and dispatch of electronic records]

17. QUESTION 11 What are the duties of the RP? ANSWER The RP shall:
Conduct the entire CIRP;
Manage the operations of the corporate debtor during the CIRP;
Conduct all meetings of the committee of creditors;
Preserve and protect the assets of the corporate debtor including continued business operations;
Prepare the information memorandum;
Examine the resolution plan prepared by the resolution applicant;
After examination, present the resolution plan to the committee of creditors for approval.
Note:
A "resolution applicant" means any person who submits a resolution plan to the resolution professional.

18. QUESTION 12 Can a RP be replaced? ANSWER Yes.
The committee of creditors may at a meeting by a vote of 75% of voting shares, replace the RP with another RP.
Procedure under Section 22 of the Code is required to be followed.

19. QUESTION 13
What matters require the approval of the committee of creditors?
ANSWER
The RP shall not take any of the following actions without prior approval of the committee of creditors:
raise any interim finance in excess of the amount as may be decided by the committee of creditors in their meeting;
create any security interest over the assets of the corporate debtor;
change the capital structure of the corporate debtor;
record any change in the ownership interest of the corporate debtor;
give instructions to financial institutions maintaining accounts of the corporate debtor for a debit transaction from any such accounts in excess of the amount as may be decided by the committee of creditors in their meeting;
undertake any related party transaction;

20. QUESTION 13
amend any constitutional documents of the corporate debtor;
delegate its authority to any other person;
dispose of or permit the disposal of shares of any shareholder of the corporate debtor or their nominees to third parties;
make any change in the management of the corporate debtor or its subsidiary;
transfer rights or financial debts or operational debts under material contracts otherwise than in the ordinary course of business;
make changes in the appointment or terms of contract of such personnel as specified by the committee of creditors; or
make changes in the appointment or terms of contract of statutory auditors or internal auditors of the corporate debtor.

21. QUESTION 14 How are the decisions at the committee of creditors taken?
ANSWER
All decisions at the committee of creditors shall be approved by a vote of 75% of the voting shares.
Note:
"voting share" means the share of the voting rights of a single financial creditor in the committee of creditors which is based on the proportion of the financial debt owed to such financial creditor in relation to the financial debt owed by the corporate debtor.
Where the corporate debtor owes financial debts to 2 or more financial creditors as a part of a consortium or agreement, each such financial creditor shall be a part of the committee of creditors and their voting share shall be determined on the basis of the financial debt owed to them.

22. QUESTION 15 How is an Insolvency Professional (‘IP’) appointed? ANSWER
Any creditor who is a member of the committee of creditors may appoint an IP other than the RP to represent such creditor in a meeting of the committee of creditors. Fees to such IP shall be borne by such creditor.

23. QUESTION 16
What is the process for preparation of an information memorandum?
ANSWER
The RP prepares the information memorandum in such form and manner containing such information as may be specified by the Board for formulating a resolution plan.

24. QUESTION 17 How is the resolution plan prepared? ANSWER
The resolution plan is prepared by the resolution applicant on the basis of the information memorandum and on the basis of the relevant information provided to him by the RP.

25. QUESTION 18
What are the essential matters to be covered in a resolution plan?
ANSWER
The resolution plan should provide for the following as set forth in Section 30 of the Code:
payment for the CIRP costs in priority to all other debts;
repayment of debts of the operational creditor;
management of affairs of the corporate debtor after approval of the resolution plan; and
implementation and supervision of the resolution plan;
The resolution plan shall not contravene the provisions of law and shall confirm to such other requirements as may be specified by the Board.

26. QUESTION 19
What is the role of the RP after the resolution plan is submitted to him by the resolution applicant?
ANSWER
The RP shall examine the resolution plan submitted to him by the resolution applicant. The RP shall ensure that the resolution plan provides for all matters listed in the Code.
After examination and confirmation of the resolution plan, the RP shall present the resolution plan to the committee of creditors for approval and upon such approval the same shall be submitted to the AA.

27. QUESTION 20
What happens after the resolution plan is submitted to the AA?
ANSWER
The AA may by order, either approve the resolution plan or reject it.

28. QUESTION 21 What happens upon approval of the resolution plan? ANSWER
After the order for approval of the resolution plan has been passed by the AA, the moratorium order shall cease to have effect. The approved resolution plan shall be binding on the corporate debtor, its employees, members, creditors, guarantors, and any other stakeholders involved in the resolution plan.
Note:
Any person aggrieved by the order of the AA approving the resolution plan may prefer an appeal to the National Company Law Appellate Tribunal. The appeal shall be in the manner and on grounds listed in Section 61 of the Code.

29. QUESTION 22 What is the time limit for completion of CIRP? ANSWER
The CIRP process is required to be completed within 180 days from the insolvency commencement date.

30. QUESTION 23
Is there a provision for extension of time limit for completion of CIRP?
ANSWER
Yes.
The time for completion of CIRP may be extended by AA upon an application being filed by the RP. The RP shall file the application with the AA to extend the period beyond 180 days if instructed to do so by a resolution passed at a meeting of the creditors by a vote of 75% of the voting shares. If the AA is satisfied that the CIRP process cannot be completed within 180 days from the insolvency commencement date, it may by order extend the process beyond 180 days but such extension shall not exceed 90 days. Extension shall not be granted more than once.

31. Thank You
(voice over by)
Alak Desai,
Associate