1. PRACTICAL ASPECTS OF INSOLVENCY AND BANKRUPTCY CODE, 2016BY
G. Sridhar
Advocate
GSLAW
Advocates
No. 206 A, 2nd Floor Embassy Square,
# 148 Infantry Road, Bangalore

2. LIST OF QUESTIONS
What is the Insolvency and Bankruptcy Code, 2016 (“IBC”) intended to cover?
Under what circumstances can IBC invoked?
What should the NCLT look into before admitting a petition under the IBC?
What is the implication of the moratorium?
What type of transactions should the Resolution Professional examine?
What are the circumstances under which one can approach NCLT post admission – Who can approach and what reliefs can be claimed?
What should NCLT look into before approving the plan? Can NCLT reject a resolution plan? If yes, on what grounds?
Who can challenge CoC approved resolution plan and on what grounds?
Appeal before the National Company Law Appellate Tribunal and Supreme Court
Disciplinary proceedings against the Resolution Professional:
What happens if the resolution plan is not submitted within the prescribed time limit?

3. What is the Insolvency and Bankruptcy Code, 2016 (“IBC”) intended to cover?
The IBC is a legislation which seeks to consolidate the various laws which governs insolvency and bankruptcy of corporate persons, partnership firms and individuals1. However, the provisions of Part III of the Code, which deals with insolvency resolution and bankruptcy for individuals and partnership firms, are yet to be notified and brought into force.
The object of the Act can be culled out from the Preamble, which is as follows2:
“An Act to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.”
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1Section 2 of the Insolvency and Bankruptcy Code, 20166
2Act No. 31 of 2016, ‘The Insolvency and Bankruptcy Code, 2016’

4. In other words, one of the important objectives of the IBC is to bring the insolvency law in India under a single unified umbrella with the object of speeding up the Insolvency process3.
The primary focus of the legislation is to ensure revival and continuation of the Corporate Debtor by protecting the Corporate Debtor from its own management and from a corporate death by liquidation4.
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3Innovative Industries v. ICICI Bank (2018) 1 SCC 356
4Swiss Ribbons v. Union of India (2019) 4 SCC 17

5. Under what circumstances can IBC invoked?
Insolvency process under the IBC can be invoked by either of the two types of creditors – (i) Financial Creditor (ii) Operational Creditor, or, by the Corporate Debtor itself.
Insolvency resolution process under the IBC can be triggered in the following manner:
by a financial creditor on the occurrence of a minimum default of INR 1,00,000/- by the Corporate Debtor in respect any debt owed to any financial creditor by filing an application under Section 7 of IBC;
 by an operational creditor on the occurrence of a minimum default of INR 1,00,000/- by the Corporate Debtor of such creditor’s debt, by filing an application under Section 9, only after expiry of 10 days from date of receipt of the demand notice by the Corporate Debtor as prescribed under Section 8 of IBC; and
by a corporate applicant on the occurrence of a minimum default of INR 1,00,000/- by the Corporate Debtor by filing an application under Section 10.
Such an application for initiation of insolvency process against the Corporate Debtor has to be filed before the concerned National Company Law Tribunal (“NCLT”) within whose jurisdiction the Corporate Debtor’s registered office is located.
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1Section 2 of the Insolvency and Bankruptcy Code, 2016
2Act No. 31 of 2016, ‘The Insolvency and Bankruptcy Code, 2016’
3Innovative Industries v. ICICI Bank (2018) 1 SCC 356
4Swiss Ribbons v. Union of India (2019) 4 SCC 17

6. What should the NCLT look into before admitting a petition under the IBC?
Upon filing of an application for initiation of corporate insolvency resolution process (“CIRP”), the NCLT is required to admit or reject such application within 14 days from receipt thereof. However the time period of 14 days has been held to be directory and not mandatory5.
In the case of a financial creditor, the NCLT shall consider whether6:
a default has occurred;
the application is complete; and
there is any disciplinary proceedings pending against the proposed resolution professional
If the NCLT finds that a default has occurred, that the application is complete and that there is no disciplinary proceeding pending against the proposed resolution professional, it shall admit the application and appoint the interim resolution professional.
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5 Surendra Trading Company v. Juggilal Kamalpat (2017) 16 SCC 143
6 Section 7 of the Insolvency and Bankruptcy Code, 2016

7. if the application is complete
In the case of an operational creditor, an application for initiation of CIRP can be admitted by the NCLT only if no dispute has been raised by the Corporate Debtor with respect to the debt. The NCLT is required to consider the following before admitting such an application7:
if the application is complete
if there has been payment of the unpaid operational debt
if the invoice/notice for payment to the corporate debtor has been delivered by the creditor
if a notice of dispute has been received by the operational creditor, or, if there is a record of dispute in the information utility; or
if there are any disciplinary proceedings pending against the proposed resolution professional
It may be noted that the ‘dispute’ regarding the debt, if any, has to be prior to the issuance of the notice as explained in more detail herein after. It is also to be noted that uploading the details of the debt in case of an operational creditor, though, is not mandatory as per Section 215(3) of the IBC, is a preferable option to be exercised in proving the debt and lack of dispute.
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7 Section 9 of the Insolvency and Bankruptcy Code, 2016

8. In the case of a Corporate Debtor who commits a default of a financial debt, it is of no matter that the debt is disputed so long as the debt is “due” i.e., payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date8.
In the case of a Corporate Debtor who commits a default of an operational debt, the creditor must assert that no dispute was raised by the Corporate Debtor regarding the debt in response to the notice referring to a pre notice dispute.
The NCLT would examine if there is existence of a dispute by considering if there is a plausible contention which requires further investigation and that the “dispute” is not a patently feeble legal argument on assertion of fact unsupported by evidence. The NCLT need not be satisfied that that the defence is likely to succeed and it need not examine the merits of the dispute at this stage. It may be noted here that though the provisions do not expressly empower the NCLT to examine this aspect, the Courts have interpreted the power of the NCLT to include this.
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8 Innovative Industries v. ICICI Bank (2018) 1 SCC 356

9. In the case of a Corporate Applicant seeking to initiate CIRP under Section 10, before admitting the application, the NCLT shall consider whether the application is complete and has been filed along with the documents stated in Section 10(3) of the IBC.
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9 Mobilox Innovations Private Limited v. Kirusa Software Private Limited (2018) 1 SCC 353

10. What is the implication of the moratorium?
The moratorium imposed by Section 14 of the IBC, pursuant to the order made under Section 13, prohibits the following:
the 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 off by the corporate debtor of any of its assets or any legal right or beneficial interest therein; and
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 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; and
the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.
The moratorium under Section 14 would include arbitration proceedings as well, though not expressly stated in the section 10.
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10 Achemy Asset Reconstruction Company Limited v. Hotel Gaudavan Private Limited & Ors (2018) 16 SCC

11. However, the order of moratorium under Section 14 of the IBC has been held to not apply in the following instances:
The order of moratorium does not apply to a personal guarantor of a Corporate Debtor10
The order of moratorium does not cover proceedings under the Section 138 of the Negotiable Instruments Act11
The order of moratorium does not apply to writ proceedings under Article 32 and 226 of the Constitution of India12
The order of moratorium would not apply to the proceedings which are for the benefit of the corporate debtor13 “Proceedings” in Section 14 does not mean “all proceedings”. The moratorium under section 14(1)(a) of the code is intended to prohibit debt recovery actions against the assets of corporate debtor14
The order of moratorium will not affect the counter-claim made against a corporate debtor in a suit filed by the corporate debtor15
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11 State Bank of India v. Ramakrishnan 2018 SCC OnLine 963
12 Shah Brothers Ispat Pvt. Ltd., v. P. Mohanraj & Ors 2018 SCC OnLine NCLAT 415
13 Canara Bank vs Deccan Chronicle Holdings Limited 2017 SCC OnLine NCLAT 255
14 Power Grid Corporation of India v. Jyoti Structures Ltd SCC OnLine Del 12729
15 SSMP Industries Ltd. v. Perkan Food Processors Pvt Ltd CS(COMM) 470/2016 decided on

12. What type of transactions should the Resolution Professional examine?
The provisions of the IBC prohibit certain types of transactions, during the specified look back period, which are detrimental to the interests of the corporate debtor and makes provision for scrutiny of such transactions and grant of appropriate reliefs by the NCLT. These transactions are set out below:

13. Preferential
Undervalued
Extortionate
Fraudulent
Who can approach NCLT?
RP or the Liquidator, as the case may be, upon forming an opinion under Section 43
In the first instance, RP or the Liquidator, as the case may be, on examination of the transactions of the Corporate Debtor, determines that certain transactions were made during the relevant period which were undervalued
Where an undervalued transaction has taken place and the RP/liquidator has not reported it to the NCLT, a creditor member, or a partner of a corporate debtor can approach the NCLT under Section 47
RP or the Liquidator, as the case may be, if the terms of such transaction required exorbitant payments to be made by the corporate debtor.
Where a transaction falls within the scope of Section 45(2), and if the NCLT is satisfied that such transaction was deliberately entered into by such corporate debtor, it is empowered to pass necessary orders

14. Preferential
Undervalued
Extortionate
Fraudulent
Under what circumstances?
If the Corporate Debtor at the relevant time, has given a preference in transactions or otherwise, to a related party or any other party within the look back period
A Corporate Debtor shall be deemed to have given preference if:
there is a transfer of property or an interest thereof of the corporate debtor for the benefit of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor
The transfer under clause (a) has the effect of putting such creditor or a surety or a guarantor in a beneficial position than it would have been in the event of a distribution of assets being made in accordance with section 53
A transaction shall be considered undervalued where the corporate debtor–
makes a gift to a person; or
enters into a transaction with a person which involves the transfer of one or more assets by the corporate debtor for a consideration the value of which is significantly less than the value of the consideration provided by the corporate debtor, and such transaction has not taken place in the ordinary course of business of the corporate debtor
A transaction shall be considered extortionate under section 50(2) where the terms:
require the corporate debtor to make exorbitant payments in respect of the credit provided; or
are unconscionable under the principles of law relating to contracts.
If the transaction in question was deliberately entered into by the corporate debtor –
for keeping assets of the corporate debtor beyond the reach of any person who is entitled to make a claim against the corporate debtor; or
in order to adversely affect the interests of such a person in relation to the claim

15. Preferential Undervalued Extortionate Fraudulent
What are the exclusions?
transfer made in the ordinary course of the business or financial affairs of the corporate debtor or the transferee
any transfer creating a security interest in property acquired by the corporate debtor to the extent that –
(i) such security interest secures new value and was given at the time of or after the signing of a security agreement that contains a description of such property as security interest, and was used by corporate debtor to acquire such property; and
(ii) such transfer was registered with an information utility on or before thirty days after the corporate debtor receives possession of such property:
Provided that any transfer made in pursuance of the order of a court shall not, preclude such transfer to be deemed as giving of preference by the corporate debtor.
Transactions where value of consideration is not significantly less than the value of the consideration provided by the corporate debtor or is in the ordinary course of business of the corporate debtor
any debt extended by any person providing financial services which is in compliance with any law for the time being in force in relation to such debt shall in no event be considered as an extortionate credit transaction.
An order under Section 49:
shall not affect any interest in property which was acquired from a person other than the corporate debtor and was acquired in good faith, for value and without notice of the relevant circumstances, or affect any interest deriving from such an interest
shall not require a person who received a benefit from the transaction in good faith, for value and without notice of the relevant circumstances to pay any sum unless he was a party to the transaction

16. Preferential Undervalued Extortionate Fraudulent
What relief can NCLT grant?
Any of the reliefs specified under Section 44 of the IBC
Any of reliefs specified under Section 48 of the IBC
Any of the reliefs specified in Section 51 of the IBC
Any of the reliefs specified in Section 49(1)(i)

17. What are the circumstances under which one can approach NCLT post admission – Who can approach and what reliefs can be claimed?
Some of the major provisions are Section 19, Section 27, Section 43, Section 45, Section 47, Section 49 and Section 60(5).
Section 19 of the Code imposes an obligation on the corporate debtor, its promoters or any other person associated with the management of the corporate debtor to extend all co-operation to the Resolution Professional in managing the affairs of the corporate debtor and empowers a Resolution Professional to approach the Tribunal for appropriate directions.
It is pertinent to note the difference in language in Section 19(1) and Section 19(2). While sub-section (1) imposes an obligation on the corporate debtor, its promoters or any other person associated with the management of the corporate debtor in managing the affairs of the corporate debtor to extend all co-operation to the Resolution Professional, sub-section (2) does not include the phrase any other person associated with the management of the corporate debtor, and instead uses the phrase “any other person required to assist or cooperate with the interim resolution professional” and omits the phrase “in managing the affairs of the corporate debtor”. However, it does not appear to result in any expansion of the categories of persons on whom an obligation is imposed to assist the RP.

18. Section 27 empowers the Committee of Creditors to replace the resolution professional at any time during the corporate insolvency resolution process. The CoC at its meeting may appoint another resolution professional and forward the name of the resolution professional so named, to the Tribunal which shall appoint such person as the resolution professional.
Section 43 of the Code empowers a liquidator or the resolution professional to file an application seeking to set aside a preferential transaction.
Section 45 empowers the liquidator or the resolution professional to file an application to set aside any transaction, which in the opinion of the liquidator or the resolution professional, is undervalued as defined under Section 45 of the Code. On receipt of the application under Section 45, the Tribunal, under Section 49, has the power to set aside/reverse the said transaction, if in the Tribunal’s opinion such undervalued transaction/s was/were entered into to defraud creditors. Further, Section 47 of the Code also empowers a member, a creditor or a partner of a corporate debtor to file an application to set aside an undervalued transaction, in case the liquidator or the resolution professional has not filed an application under Section 45. In both the cases, the Tribunal may reverse or set aside such undervalued transaction and restore the position as existed before such transaction.

19. Under Section 60(5) of the Code, the Tribunal is endowed with wide powers to adjudicate on any application or proceeding in relation to a corporate debtor, adjudicate any claims by or against the corporate debtor or its subsidiaries, and further the Tribunal also has the power to adjudicate on any question of fact or law ‘arising out of’ or ‘in relation to’ to the corporate insolvency resolution process or the liquidation process of the corporate debtor. However, it is pertinent to note that the observation of the Hon’ble Supreme Court in the case of Arcelormittal16 ,seems to suggest that the power of the Tribunal under Section 60(5) is to ensure that the Tribunal alone has jurisdiction to entertain applications by or against a corporate debtor covered by the Code and that no other forum has jurisdiction to entertain or dispose of such applications and that the said provision does not invest the Tribunal with the jurisdiction to interfere at an applicant's behest at a stage before the plan is approved.
A reading of the Code in the light of the judgment of the Hon’ble Supreme Court in Arcelormittal case seems to suggest that an application may be made before the Tribunal only by the specified persons as expressly mentioned in the Code for specific reliefs.
16 Arcelormittal India (P) Ltd. v. Satish Kumar Gupta (2019) 2 SCC 1

20. What should NCLT look into before approving the plan
What should NCLT look into before approving the plan? Can NCLT reject a resolution plan? If yes, on what grounds?
The procedure for submission of the resolution plan by the resolution applicant and the procedure to be followed thereafter is detailed in Section 30 of the Code read with Regulation 39 of the Regulations.
The resolution applicant should submit the resolution plan to the resolution professional along with an affidavit stating that the resolution applicant is eligible to submit the resolution plan and is not barred under Section 29A.
On receipt of the resolution plan, the resolution professional has to examine the plan to check if the said resolution plan confirms to the conditions laid down in Section 30(2).
If the resolution professional, after a detailed examination, comes to the conclusion that the resolution plan is in conformity with the conditions specified in Section 30(2), then the resolution professional shall present the resolution plan before the Committee of Creditors for its approval.
The Committee of Creditors will then examine the commercial viability of the resolution plan and the resolution plan will be accepted if atleast 66% of the voting share of the financial creditors vote in favour of the plan.
Thereafter, the resolution professional has to make an application before the Tribunal under Section 30(6) seeking approval of the Tribunal.

21. On receipt of the application under Section 30(6), the Tribunal has to examine in detail if the conditions specified under Section 30(2) are complied with. If upon examination the Tribunal is of the opinion that the conditions listed in Section 30(2) are complied with, then the Tribunal shall approve such resolution plan. The resolution plan so approved will be binding on the members, creditors, etc. If any of the conditions are not complied with, then the Tribunal may reject the resolution plan.
If the Tribunal approves the resolution plan, the Tribunal has also to satisfy itself that the resolution plan has appropriate mechanism for the effective implementation of the plan. Thereafter, the moratorium will be lifted.
Upon the approval of the plan, the resolution applicant has to obtain all approvals required for the implementation of the terms of the resolution plan within a period of one year.

22. H. Who can challenge CoC approved resolution plan and on what grounds?
On a perusal of the observations made by the Hon’ble Supreme Court in Arcelormittal’s case, it appears that once the CoC has approved a resolution plan, it is not open to any of the parties to challenge such approval before the Tribunal.
The Hon’ble Supreme Court in Arcelormittal’s case has observed that there is no vested right in any resolution applicant to have its plan approved and hence it appears that no resolution applicant can file an application before the Tribunal either seeking for rejection of the plan approved by the CoC or to have its plan approved.
Further, once the resolution professional files an application under Section 30(6), it is open only to the Tribunal to examine of the terms of the plan satisfy the conditions laid down in Section 30(2) and no one else. It appears that no person has the right to file any application before the Tribunal challenging the approval of the plan by the CoC.

23. I. Appeal before the National Company Law Appellate Tribunal and Supreme Court:
As per Section 61 of the Code, any person aggrieved by the order of the Tribunal may prefer an appeal before the National Company Law Appellate Tribunal. However, the term ‘the person aggrieved’ is not defined under the Code.
As per Section 61(3), an order approving the resolution plan may challenged only on the limited grounds specified under Section 61(3).
The order of the National Company Law Appellate Tribunal may be challenged before the Supreme Court on any question of law that may arise.

24. J. Disciplinary proceedings against the Resolution Professional:
The Insolvency and Bankruptcy Board of India (Grievance and Compliant Handling Procedure) Regulations, lays down that any stakeholder may file a grievance with the Insolvency and Bankruptcy Board of India in Form A.
The definition of ‘stakeholder’ is very widely worded definition.
The National Company Law Appellate Tribunal, in the case of Dhinal Shah Vs. Bharati Defence Infrastructure Limited & Anr, Company Appeal (AT) (Insolvency) No. 175 of 2019, has categorically held that it is only the IBBI which has the power to conduct any disciplinary action against a resolution professional and no other authority, including the National Company Law Tribunal.

25. K. What happens if the resolution plan is not submitted within the prescribed time limit?
As per Section 12 of the IBC, the insolvency resolution process must be completed within a period of 180 days from the date of admission of the application to initiate such process. Under Section 12(3) the NCLT is empowered pass an order extending the time period up to a total of 270 days.
If no resolution plan is received by the NCLT within the time period of 180 days or 270 days, as the case may be, the NCLT shall pass an order requiring the corporate debtor to be liquidated in the manner as laid down in Chapter III of the IBC

26. Thank You