LEGAL CHALLENGES OF CORPORATE BANKRUPTCY AND INSOLVENCY PROCEEDINGS BY - AJIT RAJU KAMBLE & SHUBHAM BALASAHEB AUTE
LEGAL CHALLENGES OF CORPORATE BANKRUPTCY
AND INSOLVENCY PROCEEDINGS
AUTHORED BY
- AJIT RAJU KAMBLE &
SHUBHAM BALASAHEB AUTE
ABSTRACT
Corporate bankruptcy and insolvency
proceedings in India have undergone significant reform with the enactment of
the Insolvency and bankruptcy code. 2016. So this framework aims to streamline
the processes, enhance creditors recoveries, and promote resolution over
liquidation. However, legal challenges persists, undermining its effectiveness
and efficiency. Key issues includes delay due to judicial bottlenecks,
conflicts of jurisdiction between different adjudicatory authorities like
National company law tribunal, high courts, and supreme court and inconsistent
interpretation of provisions. The codes application to cross-border insolvency
remains limited, causing complications in multinational corporations
resolutions. The prioritization of creditors claims has also led to disputes,
especially with operational creditors often receiving lower recoveries compared
to financial creditors. Furthermore, the lack of robust mechanisms for
detecting fraudulent practices and the limited expertise of insolvency
professionals exacerbate challenges. Addressing this issues requires procedural
clarity, capacity building in judicial and professional domains, and the
incorporation of global best practices to strengthen corporate insolvency
framework in India.
Key words: Corporate, insolvency, bankruptcy,
debtor, creditor, process, debt, Corporate insolvency resolution process.
INTRODUCTION
The Insolvency and bankruptcy of the
corporate entities which are basically a process wherein different types of
entities is going under the process of insolvency and bankruptcy, when there is
a failure to pay the debt by the corporate body or entities.
In India there is law about
Insolvency and bankruptcy code, 2016 this code regulate about the Insolvency
and bankruptcy process of an individual, partnership firms, and corporate
person in a time bound manner for maximize value of stakeholders.[1]
The Bankruptcy is an legal process
wherein an individual, business, or organization that cannot repay its debts
seeks relief from some or all of its financial obligations, in simple terms the
the debtor approach to the court and files an petition and further court declares
an entity is unable to pay any further debts, In such cases the court takes the
responsibility of liquidating the debtors assets and distributes the proceeds
to his creditors. This process is designed to provide a fresh financial for
debtor while ensuring fair treatment of creditors.
Insolvency refers to the
circumstances when a company or an individual cannot meet financial obligations
or repay any outstanding financial loan to its lenders in due time. The company
or an individual may prevent insolvency proceedings from being initiated
against them by arranging for alternate repayment arrangement or make an any
informal arrangements with the creditors for alternative payment arrangements,
if the insolvency situation remains unresolved, legal action may be undertaken
the company or an individual. This may lead to liquidation process by the order
of court to make payment of the outstanding debts. The corporate personality is
facing legal challenges while the insolvency proceedings to cure that challenges
there are certain provisions in the insolvency and bankruptcy code, 2016.[2]
Corporate bankruptcy
Corporate bankruptcy is a legal
process initiated when the company or corporate debtor becomes insolvent, that
means it can not pay its debts when they fall due.
The corporate bankruptcy is also
known as insolvency, it is a legal status that occurs when a company is unable
to meet its financial obligations, leading to cessation of operation or
restructuring of its financial affairs. Bankruptcy is a concept slightly different from
insolvency, which is rather amicable. A bankruptcy is when a person voluntary
declares himself as an insolvent and goes to the court. On declaring him as
‘bankrupt’, the court is responsible to liquidate the personal property of the
insolvent and hand it out to its creditors. It provides a fresh lease of life
to the insolvent.[3]
So, here are some important terms
came into the corporate bankruptcy they are as follows:
·
1.1 Corporate person: ( section 3 (7) Insolvency and bankruptcy code,2016 )
‘corporate person’ means a
company as defined in section 2 (20) of company Act, 2013 – company means a
company incorporated under this Act or under any previous company law,
A limited liability
partnership as defined in clause (n), sub-section (1) of section 2 of limited
liability partnership Act, 2008, or any other person incorporated with limited
liability under any law for time being in force but shall not include any
financial service provider.
·
1.2 Corporate debtor: ( section 3 (8) Insolvency and bankruptcy code,2016 )
‘corporate debtor’ means
a corporate person who owes a debt to any person.
·
1.3 Creditor: (
section 2(10) Insolvency and bankruptcy code,2016 )
‘creditor’ means any
person to whom a debt is owed and includes a financial creditor, an operational
creditor, a secured creditor, an unsecured creditor and decree-holder.
·
1.4 Corporate guarantor: (section 5(5A) Insolvency and bankruptcy code,2016)
‘Corporate guarantor’
means a corporate person who is the surety in a contract of guarantee to a
corporate debtor.[4]
·
1.5 Liquidator: ( section 5(18) Insolvency and bankruptcy code,2016 )
‘liquidator’ means an
insolvency professional appointed as a liquidator in accordance with the
provisions of Chapter III or Chapter V of this part, as case may be.[5]
1. Corporate entities comes under
corporate bankruptcy and insolvency
|
Liability to pay the debts
|
|
Corporate entities
|
§ 2.1 Corporate debtor :
Section 3(8) Insolvency and bankruptcy code, 2016 defined as
it means a corporate person who owes a debt to any person.
Here are some key features of an corporate debtor they are as
follows:
(a). Debt owed:
There are two types of debts which are
i)
Financial
debt :-
The financial debt is taken in the
form of an for example Loans, bonds, etc.
ii) Operational debt :-
The operation debt is taken for
example dues for goods and services, employee salaries, or statutory dues like
taxes.
(b). Legal
entity:
Corporate debtor is must be
registered under any Indian laws such as
-
A
company incorporated under The Companies Act, 2013 or earlier companies Acts.
-
An
LLP (Limited Liability Partnership) registered under the Limited Liability
Partnerships Act, 2008.
(c). Insolvency
process:
The Corporate insolvency resolution
process or liquidation process can be initiated against
the corporate debtor if
-
An
application is made by creditors or the debtors itself.
§ 2.2 Corporate guarantor :
Section 5(5A) Insolvency and bankruptcy code, 2016 defined as
it means corporate person who is the surety in the contract of guarantee to a
corporate debtor.
The guarantor is equally liable for the debt, and the
creditor can choose to recover the dues from the guarantor without exhausting
remedies against the borrower.
§ 2.3 Corporate person :
Section 3 (7) Insolvency and bankruptcy code, 2016
‘corporate person’ means a company as defined in section 2
(20) of company Act, 2013 – company means a company incorporated under this Act
or under any previous company law,
A limited liability partnership as defined in clause (n),
sub-section (1) of section 2 of limited liability partnership Act, 2008, or any
other person incorporated with limited liability under any law for time being
in force but shall not include any financial service provider.[6]
2. Case laws
2.1 M/S.
Innoventive Industries Ltd. vs ICICI Bank on 31 August 2017
·
Once
an insolvency professional is appointed to manage the Company, the erstwhile
Directors who are no longer in management, obviously cannot maintain an appeal
on behalf of the Company.
·
Under
the Explanation to Section 7(1), a default is in respect of a financial debt
owed to any financial creditor of the corporate debtor - it need not be a debt
owed to the applicant financial creditor. A debt may not be due if it is not
payable in law or in fact. The moment the adjudicating authority is
satisfied that a default has occurred, the application must be admitted unless
it is incomplete, in which case it may give notice to the applicant
to rectify the defect within 7 days of receipt of a notice from the
adjudicating authority.
·
The
appellant only raised the plea of suspension of its debt under the Maharashtra
Act, which, therefore, was that no debt was due in law. The adjudicating
authority correctly referred to the non obstante clause in Section 238of
the 2016 Code and arrived at a conclusion that a notification under the
Maharashtra Act would not stand in the way of the corporate insolvency resolution
process under the Code.
·
It
is clear that the later non-obstante clause of the Parliamentary
enactment will also prevail over the limited non obstante clause contained
in Section 4 of the Maharashtra Act. For these reasons, the Maharashtra
Act cannot stand in the way of the corporate insolvency resolution process
under the Code.
·
The
obligation of the corporate debtor was, therefore, unconditional and did not
depend upon infusing of funds by the creditors into the appellant company.
Also, the argument taken for the first time before us that no debt was in fact
due under the MRA as it has not fallen due (owing to the default of the secured
creditor) is not something that can be countenanced at this stage of the
proceedings. In this view of the matter, we are of the considered view that the
Tribunal and the Appellate Tribunal were right in admitting the application
filed by the financial creditor ICICI Bank Ltd.[7]
3.
Insolvency
and Corporate insolvency
According to Cambridge Dictionary, Insolvency means a situation
in which a person or a company does not have enough money to pay debts, buy
goods, etc.[8]
According to Merriam Webster Dictionary, Insolvency
means a fact or state of being insolvent: inability to pay debts.[9]
Corporate insolvency is a state where a corporate
person or company fails to pay debts to the debtors.
When a debtor gives debts to a corporate person for a
time specific time period then that corporate person shall have to pay that
debts in that specific time period to a debtor and if that corporate person
fails to pay debts to debtor then that state is known as corporate insolvency.
Insolvency refers to the circumstances when a company
or an individual can not meet financial obligations or repay any outstanding
financial loan to its lenders in due time. The company or an individual may
prevent insolvency proceedings from being initiated against them by arranging
for alternate repayment arrangement or make any informal arrangements with the
creditors for alternative payments arrangement, if the insolvency situation
remains unresolved, a legal action may be undertaken the company or an
individual. This may lead to liquidation process by the order of the court to
make payment of the outstanding debts.
4.
Insolvency
Proceedings of Corporate
The insolvency proceedings of corporate are given in
the Part II of the Insolvency and Bankruptcy Code, 2016 as, Corporate
Insolvency Resolution Process.
To initiate the insolvency proceedings the default
amount must be the minimum of Rs. 1 crore according to Section 4 of the
Insolvency and Bankruptcy Code, 2016.
The corporate insolvency resolution process can be
initiate by as follows:
i.
Financial
Creditor (Section 7)
ii.
Operational
Creditor (Section 9)
iii.
Corporate
Debtor (Section 10)
i)
Financial
creditor Section 5 (7) - means any
person to whom a financial debt is owed and includes a person to whom such debt
has been legally assigned or transferred.
A Financial creditor under section 7
(1) may by itself or jointly with other financial creditors, may file an
application before the Adjudicating Authority i.e. National Company Law
Tribunal to initiate corporate insolvency resolution process against a
corporate debtor.
The application for corporate
insolvency resolution requires a record of default, the name of the interim
resolution professional, and any relevant information specified by the board.
The Adjudicating Authority may admit the application if the application is
complete and there are no discrepancy proceedings pending against the proposed
resolution professional, or reject the application if the application is
incomplete or disciplinary proceedings are pending. The Adjudicating Authority
must give the notice to the applicant to rectify the defect within seven days
of receipt of the notice. The order to the financial creditor must be
communicated within seven days of admission or rejection. The corporate
insolvency resolution process begins from the date of application admission by
the National Company Law Tribunal.
ii)
Operational
Creditor Section 5 (20) means a person
to whom the operational debt is owed and includes any person to whom such debt
has been legally assigned or transferred.
According to the Section 8 (1) an
operational creditor may, on the occurrence of the default, deliver a demand
notice of unpaid operational debt copy of an invoice demanding payment of the
amount involved in the default of the corporate debtor in such form and manner
as may be prescribed.
The operational creditor is
responsible for bringing to the attention of the corporate debtor within ten
days of receiving a demand notice or invoice. If the debtor does not receive
payment or notice of the dispute within this time, the operational creditor may
file an application before the Adjudicating Authority for initiating a
corporate insolvency resolution process.
The application must include a copy
of the invoice demanding payment or demand notice delivered to the corporate
debtor, an affidavit stating that there is no notice given by the corporate
debtor for the unpaid operational debt, a certificate from the financial
institutions maintaining accounts of the operational creditor confirming that
there is no payment of an unpaid operational debt by the corporate debtor, a
copy of any record with an information utility confirming that no payment of an
unpaid operational debt by the corporate debtor, and any other proof confirming
that no payment of an unpaid operational debt by the corporate debtor has been
made. The creditor initiating a corporate insolvency resolution process may
propose a resolution professional to act as an interim resolution professional.
The Adjudicating Authority, such as the National Company Law Tribunal, shall
ascertain the existence of default within 14 days of the receipt of the
application.[10]
The grounds for admitting the
application include completeness, no repayment of the unpaid operational debt,
delivery of the invoice or notice for repayment, no notice of dispute, and no
disciplinary proceedings pending against any proposed resolution professional.
Grounds for rejecting the application
includes, repayment of the unpaid operational debt, delivery of the invoice or
notice for payment, and a record of dispute in the information utility.
The Adjudicating Authority must give
notice to the applicant to rectify the defect in their application within seven
days of receipt of such notice. The order will be communicated to the
operational creditor and corporate debtor within seven days of admission of the
application.
iii)
Corporate
Debtor or Applicant Section 5
(5) (c) – means an individual who is in charge of managing the operations and
resources of the corporate debtor.
According to Section 10 (1), if a
corporate debtor has committed a default then a corporate applicant may file an
application for initiating corporate insolvency resolution process with the
Adjudicating Authority.
The application for corporate
insolvency resolution requires information about the company’s books of
accounts and other documents for a specified period. The information of an
appointed interim resolution professional and a special resolution passed by
shareholders or at least three-fourth of the total number of partners of the
corporate debtor must also be provided.
a)
Acceptance
or Rejection of the Application:
The Adjudicating Authority must admit
the complete application within fourteen days, or reject it if incomplete. The
applicant must be given seven days to correct any defects before being rejected.
The corporate insolvency resolution process begins from the admission of
application.
b)
Time limit for completion of insolvency resolution
process:
According
to the section 12 (1), the corporate insolvency process shall be completed
within a period of 180 days from the date of admission of the application to
initiate such process with one time extension (only if applicable) of 90 days.
The maximum time within which corporate insolvency resolution process has to be
completed is 330 days.
c)
Withdrawal of Application:
The
Adjudicating Authority may allow the withdrawal of application admitted under
section 7 or 9 or 10, on an application made by the applicant with the approval
of ninety per cent voting share of committee of creditors.
d)
Moratorium and Public notification:
After
an application is accepted, the procedure for establishing a moratorium is
described in Section 13 of the Code. A moratorium, a public statement of the
procedure, and the appointment of an expert in interim resolution are all
required by the Adjudicating Authority. [11]
The
notification needs to be made right after following the appointment. The
moratorium forbids recovering debtor occupied property, foreclosing security
interests, transferring assets or legal rights, and instituting ongoing
lawsuits against the corporate debtor. When the application for insolvency
resolution is admitted, the moratorium order goes into effect, and it ends when
the resolution plan or liquidation order is approved. The name and address of
the debtor, as well as, the authority’s name, must be included in the public
notification of the corporate insolvency resolution procedure.
e)
Interim Resolution Professional:
The
Adjudicating Authority must appoint an interim resolution professional on the
insolvency commencement date, within fourteen days if no disciplinary
proceedings are pending. The interim resolution professional’s duties include
collecting information on the corporate debtor’s assets, finances, and
operations, receiving and collecting claims from creditors, forming a committee
of creditors, monitoring the debtor’s assets until a resolution professional is
appointed and filing information with the information utility. They also take
control and custody of any assets over which the debtor has ownership rights,
including foreign assets, tangible assets, intangible assets, securities, and
assets subject to court or authority determination. Other duties may be
specified by board, but assets, cannot include assets owned by a third party,
Indian or foreign subsidiaries, or assets notified by the central government in
consultation with financial sector regulators.
f)
Committee of Creditors:
Section
21 the Committee of Creditors is formed by the interim resolution professional
after collating all claims against the corporate debtor and determining the
financial position. It comprises all financial creditors of the corporate
debtor, with financial creditors who are related parties to the debtor not
eligible to vote. If the debtor owed financial debt to multiple financial
creditors as part of consortium agreement, each financial creditor will be part
of the committee, and their voting share will be determined based on the
financial debts owed to them. If a person is financial creditor and an
operational creditor, they will be included in the committee with a
proportionate voting share based on the extent of financial debts owed to them.
The insolvency and bankruptcy board of India may specify the manner of determining
the voting share for financial debts issued as securities. All decisions of the
committee of creditors must be taken with a vote of not less than 75 % of the
voting share of the financial creditors. Members of the committee may meet in
person or electronically, and the resolution professional must attend all
meetings. Creditors who are also members of the committee may appoint an
insolvency professional to represent them in a meeting, with fees borne by the
creditors.
g)
Appointment of Resolution Professional:
The
committee of creditors can appoint an interim resolution professional or
replace them by another resolution professional within seven days of the
committee’s constitution. The Adjudicating Authority can also replace the
resolution professional during the process period by filing an application for
the appointment.[12]
If the
board confirms the name, the interim resolution professional will continue to
function until the board confirms the appointment. The resolution professional
has a wider role in monitoring and supervising the entity, controlling its assets,
and managing the operations of the debtor during the process period. They are
responsible for negotiating between the debtor and creditors in assessing the
entity’s viability. The resolution professional is responsible for reserving
and protecting the assets of the debtor, including the continued business
operations. Some actions to be undertaken include taking immediate custody and
control of all assets, representing the debtor in judicial, quasi-judicial, or
arbitration proceedings, raising interim finances, appointing accountants,
legal professionals, maintaining an updated list of claims, convening and
attending all committee meetings, preparing information memorandums, presenting
resolution plans, filing applications for avoidance of transactions and other
actions specified by the board.
a)
Preparation of Information Memorandum:
Section
29 of the Code the resolution professional requires creating an information
memorandum for a resolution plan. The resolution professional must provide the
applicant with access to all relevant information, including the debtor’s
financial position, disputes, and other relevant matters. The applicant must
comply with current laws regarding confidentiality and insiders trading,
protect the debtor’s intellectual property, and not share the information with
third parties unless specified. The resolution professional must also ensure
the applicant does not share the information with third parties.
b)
Submission of Resolution Plan:
Section
30 of the Code states the resolution applicant requires to submit a resolution
plan based on information memorandum to a resolution professional. The plan
must provide the following: payment of insolvency resolution process costs,
repayment of operational creditor’s debts, management of the debtor’s affairs,
implementation and supervision, compliance with current law provisions, and
confirming to other requirements.
c)
Approval of Resolution Plan by Committee of Creditors:
The
committee of creditors may approve the plan by a vote of at least 75% of the
voting share of financial creditors. Voting share is defined as the share of
voting rights of a single financial creditor in the committee of creditors
based on the proportion of financial debt owed to them in relation to the debt
owed by the debtor.
d)
Approval of Resolution Plan by NCLT:
If
the NCLT approves the resolution plan, the moratorium period ends and it
becomes binding on the corporate debtor, its employees, members, creditors,
guarantors, and other stakeholders involved in the plan. If the plan does not
meet these requirements, it may be ordered to reject the plan.[13]
e)
Order:
Section 31states that after
the order of approval passed by NCLT the moratorium order shall cease to have
effect and resolution professional shall forward all records relating to the
conduct of corporate insolvency resolution process and resolution plan to the
board to be recorded on its database. The appeal from the NCLT’s approval of a
resolution plan must be made based on the grounds outlined in Section 61 (3) of
the Code. These grounds include contravention of current laws, irregular
exercise of powers by the resolution professional during the insolvency period,
insufficient provision for debts owed to operational creditors, insufficient
insolvency resolution process costs for priority repayment, and non-compliance
with other board-specified criteria. The plan must also address the debts owed
to operational creditors, the insolvency resolution process costs, and other
board specified criteria.
f) Fast track corporate insolvency
resolution process
Complexities
may come in the structure of liabilities and assets, or size of operations.
Most
entities are likely to have a less complex structure in these aspects. Their
insolvency is also likely to take a shorter time to resolve. These cases will
be called fast track insolvency resolution process where insolvency resolution
process to be carried out takes a shorter time period than the default maximum
period allowed. The code has specified three types of fast track cases for
entities with small scale of operations for entities with low complexity of creditors
and for such other categories of corporate debtors as may by prescribed. In the
first two, definitions of what constitutes such entities will be issued by the
central government.
In fast
track cases, the process flow of the insolvency resolution process will be the
same as per provisions of chapter II of the code, in order to retain the
principles of transparency and collective action. Since the resolution is
expected to be done in a shorter period, there will be a greater onus on the
process at trigger. The entity who triggers the fast track process must submit
the documentation with the application to support the case for the fast track
insolvency resolution process. The National Company Law Tribunal will seek
validation from the other parties involved before issuing the order for a fast
track insolvency resolution process. For example, if the creditor triggers the
small entity fast track insolvency resolution process, the application must
include audited statements that the entity is eligible for this process. The
National Company Law Tribunal will forward these to the debtor for validation.
If there is no dispute from the debtor on the eligibility documents within a
specified amount of time, the National Company Law Tribunal will issue the
order for the fast track insolvency resolution process.
The process is similar to that given
in the Chapter II, where an interim resolution professional who is in charge of
collection and collation of claims, monitoring the entity and the creation of a
creditors committee. Once the committee is formed, the resolution professional
will verify the submitted liabilities to the best of his/her ability. The
committee recommends that this time period should be at least half the time
taken for the complex cases, or within 90 days. [14]
Similar to the provision for insolvency
resolution process, in a fast track process, if more than 75% of the creditors
are of the view that more time is required to resolve the stress, they may
apply to the National Company Law Tribunal for an extension. The debtor or any
other creditor will not be entitled to seek an extension. The provisions
relating to offences and penalties under Chapter VII shall apply to this fast
track process.
5. Legal Challenges of Insolvency
Proceedings
The Insolvency and Bankruptcy Code,
2016 offers a time bound resolution process aimed to provide an effective and
quick ways to do corporate insolvency of a corporate person by providing a
corporate insolvency resolution process through National Company Law Tribunal.
Along with this new law there comes a
lot of challenges which creates problems during applying and procedure of the
corporate insolvency procedure. Some of they are as follows:
a) Time limit process of corporate
insolvency resolution process:
As per the section 12, of
Insolvency and Bankruptcy Code, 2016 the corporate insolvency resolution
process shall be completed within a period of 180 days from the date of
admission of the application. This is a speedier process in which the
resolution professional has to collate the information utility of claims and to
prepare information memorandum while taking over the management while
constituting committee of creditors and to handle all its procedure. All this
process has to be done by the insolvency resolution professional within a
period of 180 days is a quiet challenging.
b) Inadequate quantity of
infrastructure:
The Adjudicating
Authority lacks in having various departments itself such as IT for the better
handling of the corporate insolvency resolution process without getting
overburden by the process in the time bound process.
c) Insolvency resolution professionals :
At the current situation
there are only 896 insolvency resolution professionals registered in India
under The Insolvency and Bankruptcy Code, 2016, the numbers itself lacks which
burdens there working ability.
Having the lacking
quantity of the insolvency resolution professionals there’s also lacking of the
skills of insolvency professionals. They have a minimum experience and
qualification regarding the role as insolvency professional and by following this
they address difficulties in the corporate insolvency resolution process.[15]
d) Lengthy processes:
The process of corporate
insolvency resolution has given time period of 180 days with extension up to 90
days but from filing an application before the Adjudicating Authority till
getting a final order from the Adjudicating Authority this process takes
average time period of two years which slower the whole insolvency processes.
e) Shortage of Adjudicating Authority
benches:
The Adjudicating
Authority i.e. National Company Law Tribunal has only 11 benches in India with
inadequate and limited technical and judicial member working and representing
the benches. This thing only increases pendency of cases in Adjudicating
Authority.
f) Cross border insolvency:
Since the Insolvency and
Bankruptcy Code, 2016 does not have any provisions related to the cross border
insolvency process; the cross border insolvency cannot be implemented in India
which leads to the code to an incomplete version of corporate insolvency
processes.
Legal Provisions
in India
The insolvency proceeding has given
legal provisions under The Insolvency and Bankruptcy Code, 2016 by using which
one can start the procedure are as follows:
1) Initiation of corporate insolvency
process:
Under Section 6 of the Insolvency and
Bankruptcy Code, 2016 given that a financial creditor or an operational
creditor or a corporate debtor may initiate the insolvency resolution process
if any corporate debtor commits a default.
i)
Section 7 a financial creditor may initiate corporate insolvency
resolution process
ii) Section 9 an operational creditor may
initiate corporate insolvency resolution process
iii) Section 10 a corporate debtor itself
may initiate corporate insolvency resolution process
2) An application of corporate
insolvency resolution process against corporate debtor shall be initiated
before Adjudicating Authority. Section 60 of the code states that the National
Company Law Tribunal shall be the Adjudicating Authority.
3) Section 12 states that the corporate
insolvency resolution process shall be completed within a period of 180 days of
the admission of the application.
4) Section 21 states that the interim
resolution professional shall constitute a committee of creditors.[16]
5) Under section 22 the committee of
creditors may appoint a resolution professional by way of voting to replace the
interim resolution professional appointed by the National Company Law Tribunal.
6) Section 30 submission of resolution
plan by the resolution applicant to the resolution professional.
7) Approval of resolution plan by the
committee of creditors by a vote of not less than seventy five per cent.
8) Approval of resolution plan by NCLT only
if it satisfied that the resolution plan is approved by the committee of
creditors.
9) Section 31 the NCLT shall passed the
order that the moratorium shall cease to effect.
Penalty provisions: Section 235A Punishment where no
specific penalty or punishment is provided – If any person contravenes any of
the provisions of this Code or the rules or regulations made thereunder for
which no penalty or punishment is provided in this Code, such person shall be
punishable with fine which shall not be less than one lakh rupees but which may
extend to two crore rupees.[17]
6. Case Laws
Vidarbha Industries Power Ltd. vs.
Axis Bank Ltd. 2022
Power producer Vidarbha Industries
was waiting for favourable decision from MERC and APTEL, the electrical
regulators, to collect more than Rs. 1700 crores from its client, RIL. The
monies were withheld, though, since the regulators orders were contested. Due
to a lack of finances, Vidarbha neglected to make payments to its financial
creditor, Axis Bank. Axis Bank applied to the NCLT under section 7 of the
Insolvency and Bankruptcy Code to start a CIRP against Vidarbha. Citing pending
regulatory orders in its favour, Vidarbha challenged the admittance and
requested a postponement till the monies were released. Using the Supreme
Court’s ruling in Swiss Ribbons as support, NCLT and NCLAT denied Vidarbha’s appeals,
holding that admission under Section 7 should not be postponed because of
unrelated issues. Vidarbha filed a Supreme Court petition.
The Supreme Court stated that both
the previous fora as per the requirements of Section 7 of the IBC had only observed
whether a debt and requisite default had occurred. It concluded that both the
institutions had not entered into the merits of the matter. While not agreeing
with the view taken by the previous forums, the Supreme Court held that the
award of ATEPL cannot completely be disregarded, and the viability and overall
financial health of Vidarbha Industries cannot be held as extraneous matters.The
court concluded that the word may in Section 7 (5) (a) gives the NCLT
discretion by applying the literal interpretation rules from instances.
According to the Court, NCLT and NCLAT made a mistake by ignoring the sizeable
amount that Vidarbha could have realized given APTEL’s ruling in its favour.
After taking into account pertinent facts, it granted the appeal, declaring
that NCLT has the authority to reject or postpone petitions under Section 7 (5)
(a).[18]
7. Conclusion
The corporate bankruptcy and
insolvency proceedings present a complex web of legal challenges, including
time limit process of corporate insolvency resolution process, inadequate
quantity of infrastructure, insolvency resolution professionals, lengthy processes,
shortages of adjudicating authority benches, cross border insolvency. These
challenges often require careful consideration of competing interest, such as
preserving business continuity, safeguarding stakeholders rights, and upholding
the integrity of legal process.
Addressing these issues effectively necessitates a combination of robust legal
expertise, strategic planning, and reforms that promote transparency, fairness
and efficiency In insolvency proceedings. For that in India there is an law to
handle the insolvency proceedings of corporate it deals under the insolvency
and bankruptcy code, 2016. In India every insolvency and bankruptcy matter that
are handle by this code wherein the for such offences penalties also provide
therein the code.
BIBLIOGRAPHY
1. Law of insolvency and bankruptcy – S.
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2. Insolvency and bankruptcy code, 2016
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INSOVENCY PROCEEDING OF CORPORATE
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[10] INSOLVENCY AND BANKRUPTCY CODE,
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[11] INSOLVENCY AND BANKRUPTCY CODE,
2016/INSOLVENCY PROCEEDING/
[14] INSOLVENCY AND BANKRUPTCY CODE, 2016/ INSOVENCY
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