Corporate Insolvency Resolution Process Matters

Whether the issuance of the Recovery Certificate in favor of the "financial creditor" would give rise to a fresh cause of action to initiate proceedings Under Section 7 of the IBC?

After hearing contention of both sides and relying on the case of Dena Bank v. C. Shivakumar Reddy and Ors. MANU/SC/0502/2021 , Supreme Court observed that issuance of a certificate of recovery in favor of the financial creditor would give rise to a fresh cause of action to the financial creditor, to initiate proceedings Under Section 7 of the IBC for initiation of the CIRP, within three years from the date of the judgment and/or decree or within three years from the date of issuance of the certificate of recovery, if the dues of the corporate debtor to the financial debtor, under the judgment and/or decree and/or in terms of the certificate of recovery, or any part thereof remained unpaid. It was further observed that where any Corporate Debtor commits a default, a financial creditor, an operational creditor or the Corporate Debtor itself is entitled to initiate CIRP in respect of such Corporate Debtor in the manner as provided under Section 6 of the IBC Code.

Dena Bank v. C. Shivakumar Reddy and Ors. MANU/SC/0502/2021

Whether Insolvency proceedings can be used to defeat a claim existing prior to the initiation of insolvency proceedings?

A Single Judge Bench of the Calcutta High Court comprising Justice Moushumi Bhattacharya recently held that the corporate insolvency resolution procedure enumerated under the Insolvency and Bankruptcy Code, 2016 (IBC) cannot be used as a tool to curtail any claim which arose prior to the commencement of the insolvency proceedings..

Relying on the law laid down by the Supreme Court in the case of K. Kishan vs. Vijay Nirman Company Pvt. Ltd. (MANU/SC/0872/2018); Mobilox Innovations Private Limited vs. Kirusa Software Private Limited (MANU/SC/1196/2017), Calcutta High Court eventually found that " is evident that the view of the Supreme Court was that the IBC cannot be used in terrorem to extract a sum of money when that sum is a subject-matter of a pending adjudication".

The intention of the Supreme Court was that corporate insolvency resolution proceedings cannot be used to defeat a claim or a dispute which existed prior to the initiation of the insolvency proceedings.

Sirpur Paper Mills Ltd. vs. I.K. Merchants Pvt. Ltd. (10.01.2020 - CALHC) : MANU/WB/0040/2020


The Delhi High Court granted an interim stay of the order passed by the Mumbai Bench of NCLT in which the Tribunal initiated insolvency proceedings against Mr. Anil Ambani.

The constitutionality of the order of the Tribunal was challenged by Mr. Ambani. Under Section 60(2) and Section 14(3) (b) of the Insolvency and Bankruptcy Code, 2016 moratorium would not apply to the invocation of guarantees given for corporate debtor. The rationale behind such exclusion was to ensure that the personal guarantors do not escape from an independent and co-extensive liability to pay the outstanding debts.

The personal guarantors provide personal guarantees voluntarily, to support the business knowing the risks. It cannot be so that they gain from the loans advanced to the corporate debtor but get out of the responsibilities at the time of invocation of their personal guarantees on the ground that they are paying a debt not taken by them and their right of subrogation is affected.

State Bank of India vs. Anil Dhirajlal Ambani (20.08.2020 - NCLT - Mumbai): MANU/NC/8854/2020


The Hon'ble Supreme Court held that Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC) can continue independent of any pending winding up process against the corporate debtor pending in the High Court under the Companies Act, the bench concluded that CIRP was an independent process. The bench also noted that Section 434 was amended, adding a proviso to enable a party to seek transfer of winding up petition pending in HC to the NCLT. The Court however granted liberty to the appellant to seek transfer of the application in HC to NCLT under Section 434.

Forech India Ltd. vs. Edelweiss Assets Reconstruction Co. Ltd. (22.01.2019 - SC) : MANU/SC/0080/2019

Whether "Corporate insolvency resolution process" can be equated with "winding up proceedings"?

Therefore, as such, the proceedings under Section 9 of the IBC shall not be limited and/or restricted to winding up and/or appointment of receiver only. The winding up/liquidation of the company shall be the last resort and only on an eventuality when the corporate insolvency resolution process fails. As observed by this Court in Swiss Ribbons Pvt. Ltd. and Ors. vs. Union of India (UOI) and Ors. (25.01.2019 - SC) : MANU/SC/0079/2019, referred to hereinabove, the primary focus of the legislation while enacting the IBC is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate debt by liquidation and such corporate insolvency resolution process is to be completed in a time bound manner. Therefore, the entire "corporate insolvency resolution process" as such cannot be equated with "winding up proceedings".

Duncans Industries Ltd. Vs. A. J. Agrochem (04.10.2019: SC) : MANU/SC/1385/2019

Whether a Sole Proprietary Concern can Initiate Insolvency Proceedings?

The NCLT Delhi has held that since a 'Sole Proprietary' concern is not a person under section 3(23) of the Insolvency and Bankruptcy Code, 2016, it cannot initiate insolvency proceedings.

Section 3(23) provides the definition of a 'person', and includes an individual, a Hindu Undivided Family, a company, a trust, a partnership, a limited liability partnership, any other entity established under a statute, and also includes a person residing outside India. In view of the definition of 'person' not including a Sole Proprietary Concern, as well as a pre-existing dispute, NCLT held that the petition preferred by RG Steels for initiation insolvency proceedings was not maintainable, and hence the matter is dismissed.

R.G. Steels vs. Berrys Auto Ancillaries (P) Ltd. (23.09.2019 - NCLT - New Delhi): MANU/NC/6782/2019

What is the role of Committee of Creditors (CoC) in Corporate Insolvency Resolution Process (CIRP)?

It is the commercial wisdom of the CoC to decide as to whether or not to rehabilitate the CD by accepting a particular resolution plan. The rationale for only FCs handling the affairs of the CD and resolving them have been deliberated upon by the BLRC, which formed the basis for the enactment of the Insolvency Code.

The insolvency resolution is ultimately in the hands of the majority vote of the CoC. It may approve a resolution plan by a vote of not less than 66% of the voting share of the FCs, after considering its feasibility and viability, and various other requirements as may be prescribed by the Regulations.

What is left to the majority decision of the CoC is the "feasibility and viability" of a resolution plan, which obviously takes into account all aspects of the plan, including the manner of distribution of funds among the various classes of creditors.

It is the commercial wisdom of the majority of creditors to determine, through negotiation with the prospective resolution applicant, as to how and in what manner the CIRP is to take place.

Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta and Ors. (15.11.2019 - SC) : MANU/SC/1577/2019

What are the utilisation of profits of the CD during CIRP?

Distribution of profits made during the CIRP will not go towards payment of debts of any creditor.

Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta and Ors. (15.11.2019 - SC) : MANU/SC/1577/2019


The Hon'ble Supreme Court has held that winding up proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985 will continue in the High Court and not the National Company Law Tribunal, until an application for transfer to NCLT is filed by a party under Section 434(1)(c) of the Companies Act 2013.Further it was held that "under the scheme of Section 434 (as amended) and Rule 5 of the 2016 Transfer Rules, all proceedings under Section 20 of the SIC Act pending before the High Court are to continue as such until a party files an application before the High Court for transfer of such proceedings post 17.08.2018(under Section 434(1)(c) of the Companies Act)" The SC however found fault with the portion of the HC order which set aside the NCLT order of admission of application under Section 7 IBC.

Jaipur Metals and Electricals Employees Organization vs. Jaipur Metals and Electricals Ltd. and Ors. (12.12.2018 - SC) : MANU/SC/1466/2018


The Hon'ble Supreme Court, interpreting Section 29A(c) of the Insolvency and Bankruptcy Code, 2016, has observed the stage of ineligibility attaches when the resolution plan is submitted by a resolution applicant and not at any anterior stage. The bench further held that the time limit for completion of the insolvency resolution process as laid down under Section 12 IBC is mandatory and it cannot be extended beyond 270 days.

ArcelorMittal India Private Limited vs. Satish Kumar Gupta and Ors. (04.10.2018 - SC) : MANU/SC/1123/2018


The Hon'ble Supreme Court used its plenary powers under Article 142 of the Constitution of India which is a power very sparingly exercised and gave the direcion: "In the exercise of the power vested in this Court under Article 142 of the Constitution, we direct that the initial period of 180 days for the conclusion of the CRIP in respect of JIL shall commence from the date of this order. If it becomes necessary to apply for a further extension of 90 days, we permit the NCLT to pass appropriate orders in accordance with the provisions of the IBC."

Chitra Sharma and Ors. vs. Union of India (UOI) and Ors. (09.08.2018 - SC) : MANU/SC/0834/2018

Whether permission or consent of Joint Lender Forum (JLF) necessary to be obtained before initiating Insolvency Resolution Process?

a) It is required to admit the case but in case the application is incomplete application, the financial creditor is to be granted seven days' time to complete the application. However, in a case where there is no default or defects cannot be rectified, or the record enclosed is misleading, the application has to be rejected. Beyond the aforesaid practice, the 'adjudicating authority' is not required to look into any other factor, including the question whether permission or consent has been obtained from one or other authority, including the JLF. Therefore, the contention of the petition that the Respondent has not obtained permission or consent of JLF to the present proceeding which will be adversely affect loan of other members cannot be accepted and fit to be rejected.

Innoventive Industries Ltd. vs. ICICI Bank and Ors. (15.05.2017 - NCLAT): MANU/NL/0020/2017.

What is 'Corporate Insolvency Resolution Process'?

a) The term 'Corporate Insolvency Resolution Process' though not defined under IBC, 2016, is seen to be defined in Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 to mean "the insolvency resolution process to corporate persons under Chapter II of Part II of the Code"

Rave Scans Pvt. Ltd. vs. Indian Overseas Bank and Ors. (25.01.2017 - NCLT - Principal Bench) : MANU/NC/0056/2017.

What information is required to be furnished by corporate debtor for initiation of insolvency resolution process?

a) The procedure in relation to the initiation of corporate insolvency resolution process by the corporate debtor is delineated under Section 10 of IBC, 2016 wherein the corporate debtor is required to furnish information in accordance with Form-6 of the Insolvency & Bankruptcy (Adjudicating Authority) Rules, 2016. Under Form-6, the corporate debtor is required to disclose as amongst others, the details of the corporate debtor including the date of incorporation as well as the details of financial creditor and operational creditors to whom the corporate debtor owes money including their address for correspondence. It is also pertinent to note that in relation to the debts owed by the corporate debtor, corporate debtor is required to furnish the total amount of debt and the amount in default and also in particular as to when the financial or operational debt was incurred and the details of the security held, if any, by the creditors and its estimated value. The corporate debtor, in addition, is also required to furnish the documents evidencing the existence of financial/operational debt and the amount in default. All the above information are required to be furnished before the Adjudicating Authority i.e. NCLT in order to provide sufficient background material to the Adjudicating Authority to initiate corporate insolvency resolution process by the corporate debtor itself. Since the corporate debtor itself is initiating the process of insolvency, it is incumbent on the corporate debtor to disclose all the above facts including in relation to the debts owed by it to its creditors as well as securities offered to the creditors as well as of assets of the corporate debtor. Since the process is self-initiated in so far as the corporate debtor is concerned, all the disclosures must be true and correct and must not be made solely to scour for any concession it may get in the process, including moratorium, with a view to deny the recovery of bona fide and lawful debt owed to its creditors, including financial and operational.

In Re: Unigreen Global Private Limited (08.05.2017 - NCLT - Principal Bench): MANU/NC/0338/2017.

Can the holder of a General Power of Attorney initiate insolvency process on behalf of creditors of a corporate debtor?

Most operational, financial and corporate debtors are juristic entities. Therefore, the question as to who can initiate insolvency process on behalf of such entities often arises. This issue has been addressed by the NCLAT in a number of cases.

The NCLAT has categorically ruled that a 'Power of Attorney Holder' is not competent to file an application on behalf of a 'Financial Creditor' or 'Operational Creditor' or 'Corporate Applicant'. It opined that in terms of Rule 23(1) of NCLT Rules, 2016 and Form 1 of I&B (Application to Adjudicating Authority) Rules, 2016, a 'Financial Creditor', being a juristic person, can only act through an 'Authorized Representative'. Rule 23 of NCLT Rules, 2016 is applicable to application filed under section 7, 9 and 10 of the Code as per Rule 10 of the Adjudicating Authority Rules.

The relevant rule 23(1) states as follows:

'(1) Every petition, application, caveat, interlocutory application, documents and appeal shall be presented in triplicate by the appellant or applicant or petitioner or respondent, as the case may be, in person or by his duly authorized representative or by an advocate duly appointed in this behalf in the prescribed form with stipulated fee at the filing counter and non-compliance of this may constitute a valid ground to refuse to entertain the same.'

This 'Authorized Representative' is distinct from the 'Power of Attorney Holder'. The court clarified that he IBS is a complete code in itself and any provision of the Power of Attorney Act, 1882 cannot override the specific provision of the Code, which requires that a particular act should be done by a person in the manner as prescribed there under.

The Bench referred to Section 2 of the Power of Attorney Act, 1882 and held that a specific authorization is required to initiate process under the Code. Entry 5 of Form 1 requires the 'name and address of the person authorized to submit application in its behalf', and hence a general power of attorney in someone's favour to initiate legal proceedings is not sufficient authorization under the Code. Furthermore, an observation was made by the court, that if an officer of a bank has been authorized to grant loan or for recovery of loan, it is sufficient authorization to initiate CIRP under the Code. And it cannot be pleaded that no specific grant has been made to initiate CIRP.

The law, thus, stands clarified that a general power of attorney holder cannot act on behalf of the Financial Creditor/Operational Creditor/Corporate Applicant under the Code. An insolvency resolution process can and may have adverse consequences on the welfare of the company, hence it becomes imperative that it is initiated by someone who is duly authorized. The Authorized Person can be authorized for specific operations under the Code or if he has been given power to grant a loan then he has the capacity to recover the same on a default.

Palogix Infrastructure Pvt. Ltd. v. ICICI Bank Ltd. MANU/NL/0095/2017

What is the amount of time taken to complete the insolvency resolution process?

The IBC mandates a 180 day period which is extendable to 270 days for the completion of the resolution process. However, the amount of litigation ensuing during this time period, more often than not, results in derailing this.

For ease of reference, the ideal timeline of the resolution process can be tabulated as follows -

Sr. No. Particulars Timeline Directory / Mandatory
1. Service of Form-3 i.e. demand notice by the operational creditor. N.A. Mandatory
2. Filing of Form-5 i.e. application with the Hon'ble National Company Law Tribunal. 10 days after service of demand notice Mandatory
3. Raising of defect by the Registrar. Time not specified under the Code N.A.
4. Defect to be cured by the operational creditor. 7 days from the date of notice by NCLT Directory
5. NCLT may either admit or reject the application. 14 days from the receipt of application Directory
6. Appointment of Insolvency Resolution Professional (applicable when the name of the IRP is not suggested in Form 5). 14 days from the admission of the application Mandatory
7. Completion of corporate insolvency resolution process. 180 days from the date of admission of the application (Extension of 90 days may be allowed by the NCLT) Mandatory
8. In case no resolution plan is agreed upon by the Committee of Creditors and subsequently approved by the Hon'ble NCLT, the liquidation process will commence. After 180 days or 270 days (in case of extension) till the final order is passed by the Hon'ble NCLT Mandatory

In Re: Surendra Trading Company Vs. Juggilal Kamlapat Jute Mills Company Limited and Ors MANU/SC/1248/2017, the Hon'ble Supreme Court of India held that the period of seven days within which defect is to be cured by the operational creditor and the period of fourteen days within which the Hon'ble NCLT has to pass the order are both directory in nature.

Whether non-disclosure of facts beyond the statutory requirement under the code read with relevant form, prescribed under the Insolvency and Bankruptcy Rules, 2016 can be a ground to dismiss an application for initiation of Corporate Insolvency Resolution Process?

Section 10 does not empower the Adjudicating Authority to go beyond the records as prescribed under Section 10 and the information's as required to be submitted in Form 6 of the Insolvency and Bankruptcy Rules, 2016. If all information's are provided by an applicant as required under Section 10 and Form 6 and if the Corporate Applicant is otherwise not ineligible under Section 11, the Adjudicating Authority is beyond to admit the application and cannot reject the application on any other ground.

M/s. Unigreen Global Pvt. Ltd. Vs. Punjab National Bank, NCLAT MANU/NL/0192/2017