By:

Mr. V. S. V. Rao
Executive Director,
IFCI Limited
 POINTS OF DISCUSSION

• The pre-IBC Era in comparison with post-IBC era

• The Code: An Analysis
• The Corporate Insolvency Resolution Process
• Recovery of IFCI under Resolution Plans
• Important Judgments
• The Ordinance, 2018 – Key Amendments
• Practical Questions for consideration
POSITION BEFORE AND
AFTER IBC
 DIFFERENT LEGAL ROUTES
Four different legal routes available to lenders prior to IBC:

Sick Industrial Companies Act, 1985

Recovery of Debts due to Banks and Financial

Institutions Act, 1993

Securitization and Reconstruction of Financial Assets

and Enforcement of Security Interest Act, 2002

Companies Act, 2013

Previously, four different forums—High Courts, Company Law Board
(CLB), Board for Industrial and Financial Reconstruction (BIFR) and
Debt Recovery Tribunal (DRT)—had overlapping jurisdictions, which
gave rise to systemic delays and complexities in the process. The
Code overcomes these challenges and has reduced the burden on the
courts as all litigations will be filed under the Code before the
National Company Law Tribunal (NCLT).

CLB BIFR

HIGH
DRT
COURT
NCLT
 PRE IBC POST IBC
Proceedings against companies After the coming into force of IBC,
would go to Company Law Boards, proceedings against Companies, as
High Courts, DRTs, BIFR. well as Personal Guarantors fall
with the NCLTs.
Proceedings against guarantors
would go to DRT.

The introduction of IBC has brought about

consistency, uniformity and has provided for strict
timelines to be adhered to, which were missing in
the pre-IBC era.
 BEFORE AFTER
Multiple judicial forums, resulting in Consolidation of all existing insolvency-
obscurity and ambiguity in jurisdiction related laws as well as amendment of
multiple legislation, including the
Companies Act.

Overriding effect on all other

laws relating to insolvency and
bankruptcy

Different and often competing rights
for all credit-side stakeholders without
a singular regulatory process to
determine the priority of claims
Delays in the closure of unviable
businesses due to the pro-revival
approach of the judicial system;
average litigation time of more than 4
years in India
IBC has a clearly defined ‘order of
priority’ or the waterfall mechanism.
The waterfall renders government dues
junior to most others.
The Code aims to resolve insolvencies
in a strict time-bound manner — the
evaluation and viability determination
must be completed within 180 days.
The company’s insolvency professional
has a moratorium period of 180
days(extendable up to 270 days) to take
over the management of the company.
 IMPACT OF IBC ON OTHER
LEGISLATIONS
ACTS REPEALED:
• Sick Industrial Companies Act, 1985
• Provincial Insolvency Act, 1920
• Presidency Towns Insolvency Act, 1909

ACTS AMENDED:
• Recovery of Debts Due to Banks and Financial Institutions Act, 1993
• Securitization and Reconstructions of Financial Assets and Enforcements
of Security Interest Act, 2002
• Companies Act, 2013
• Partnerships Act, 1932
• LLP Act, 2008
• Tax Laws
 WINDING UP PRIOR TO IBC
Under the Companies Act there were three modes of winding up:
1. Compulsory winding up by the court;
2. Voluntary winding up without the intervention of the court
3. Voluntary winding up with the intervention of the court i.e., under the
supervision of the court.

Grounds of winding up:

Section 433 of the Companies Act laid down the circumstances under which
a Company may be compulsorily wound up. Some of them being:
1. If the Company has by special resolution, resolved that the Company may
be wound up by the court. (Section 433(a))
2. If the Company does not commence its business within a year from its
incorporation or suspends it for a whole year. (Section 433(c))
3. If the Company is unable to pay its debts. (Section 433(e))
4. If the court is of the opinion that it is just and equitable that the company
should be wound up. (Section 433(f)).
 WINDING UP UNDER IBC
More Objective
as compared to
Standardized
Winding up
Petitions
under
Companies Act

Mere default in
adherence to
Simplified
Resolution Plan
Process of Filing
would also result

IBC in Liquidation
THE CODE: AN ANALYSIS
 WHY ‘CODE’
WHY NOT ‘ACT’
• An ACT is a formal decision law, or the like, by a legislature, ruler, court,
or other authority;

• A CODE is a systematically arranged collection or compendium of laws. It

refers to a systematic and comprehensive compilation of rules or
regulations that are consolidated and classified according to a particular
subject matter.

(INSOLVENCY AND BANKRUPTCY CODE, 2016 – India had/ has multiple

prevalent laws, such as SICA, 1985; Recovery of Debts Due to Banks and
Financial Institutions Act, 1993, SARFAESI Act, 2002, Companies Act, 2013,
The Presidency Towns Insolvency Act, 1909, Provincial Insolvency Act, 1920.
The High Courts, District Courts, CLB, BIFR, DRTs had jurisdiction at various
stages, giving rise to the potential of systemic delays and complexities in the
process.)
 DIFFERENCE BETWEEN:

INSOLVENCY BANKRUPTCY

Insolvency occurs when an Bankruptcy is when a person is

individual or a firm is unable to ‘declared’ incapable of paying their
meet their financial obligations. dues/ debts. It is a legal status of a
Insolvency is, thus, a financial state. person or other entity that cannot
repay the debts it owes to creditors.
 FUNDAMENTAL FEATURES OF
THE CODE
• Offers a uniform, comprehensive insolvency legislation encompassing
all companies, partnerships and individuals (other than financial
firms).

• Allows creditors to assess the viability of a debtor as a business

decision, and agree upon a plan for its revival or a speedy liquidation.
The Code creates a new institutional framework, consisting of a
regulator, insolvency professionals, information utilities and
adjudicatory mechanisms, that will facilitate a formal and time bound
insolvency resolution process and liquidation.
 OBJECTIVES OF THE CODE
To consolidate multiple laws and
adjudicating authorities dealing
with insolvency, revival, To create new institutional
liquidation of various entities, framework consisting of IBBI,
including individuals, IPAs, IPs, IUs
partnerships, corporate entities,
etc.

To improve ease of doing

Time bound Insolvency
business, and to set up faster
Resolution Process and
debt recovery mechanism in
Liquidation
India
 KEY ASPECTS OF THE CODE
• Paradigm shift from the existing ‘Debtor in possession’ to ‘Creditor in
control’ regime.
• Consolidating all existing insolvency related laws as well as amending
multiple legislation including the Companies Act.
• The code to have an overriding effect on all other laws relating to
Insolvency & Bankruptcy.
• The code aims to resolve insolvencies in a strict time-bound manner –
the evaluation and viability determination must be completed within
180 days.
• Moratorium period of 180 days (extendable up to 270 days) for the
Company and oversee the process.
• Insolvency professional to take over the management of the Company.
• Clearly defined ‘order of priority’ or the waterfall mechanism.
• The waterfall to render government dues junior to most others is
significant.
 PROCESSES UNDER THE CODE
IBC

Companies/ Partnership
Notified LLPs Individuals
Firms
Bodies

Insolvency Insolvency

Liquidation Bankruptcy

Voluntary
Liquidation
STRUCTURE OF THE CODE

PART I: Short Title, Extent and Definitions

PART II: CIRP, Liquidation, Fast Track CIR, Voluntary

Winding Up

PART III: Applicable to Individuals and Firms, fresh start

process

PART IV: Institutional Framework, IPs, IPAs, IUs, Code of

Conduct for IPs

PART V: Repeal, Amendment, Transitional Provisions,

Empowerment, 11 Schedules
APPLICANTS UNDER THE CODE

APPLICANTS

Financial Operational Corporate

Creditors Creditors Debtors
 FINANCIAL Any person to whom a financial debt is owed – Assigned
CREDITOR or transferred.

OPERATIONAL A person to whom an Operational Debt is owed –

CREDITOR whether legally assigned or transferred.

CORPORATE
DEBTOR A Corporate Person who owes a Debt to any person.
 APPLICABILITY OF THE CODE
The provisions of the Code shall apply to:

a) any company;
b) any Limited Liability Partnership;
c) such other body incorporated under any law for the time being in
force, as the Central Government may, by notification, specify in this
behalf;
d) personal guarantors to corporate debtors;
e) partnership firms and proprietorship firms; and
f) individuals, other than persons referred to in clause (d) in relation to
their insolvency, liquidation, voluntary liquidation or bankruptcy, as
the case may be.
 WHO CAN NOT BE AN
APPLICANT?
a) a corporate debtor undergoing CIRP; or

b) a corporate debtor having completed CIRP twelve months preceding the

date of making of the application; or

c) has violated any of the terms of resolution plan which was approved
twelve months before the date of making of an application under this
Chapter; or

d) a corporate debtor in respect of whom a liquidation order has been

made
CORPORATE INSOLVENCY
RESOLUTION PROCESS
(CIRP)
 COMMENCEMENT OF THE
INSOLVENCY RESOLUTION
PROCESS
• A Financial Creditor (for a defaulted financial debt) or an Operational
Creditor (for an unpaid operational debt) can initiate an Insolvency
Resolution Process against a Corporate Debtor at the National Company
Law Tribunal (NCLT).

• The defaulting Corporate Debtor, its shareholders or employees, may

also initiate voluntary insolvency proceedings.

• Relevant provisions under the Code:

a. Filing of Application by Financial Creditor – Section 7
b. Filing of Application by Operational Creditor – Section 9
c. Filing of Application by Corporate Debtor – Section 10
• The Adjudicating Authority shall, within fourteen days of the receipt of
the application, ascertain the existence of a default. (JK Jute Mills)

• If the Adjudicating Authority is satisfied that a default has occurred and

the application is complete, and there is no disciplinary proceedings
pending against the proposed resolution professional, it may admit such
application.

• If the Adjudicating Authority is satisfied that no default has occurred or

the application is incomplete or any disciplinary proceeding is pending
against the proposed resolution professional, it may reject such
application. Provided that the Adjudicating Authority shall, before
rejecting the application, give a notice to the applicant to rectify the
defect in his application within 7 days of receipt of such notice. (JK Jute
Mills ).

THE CIRP SHALL COMMENCE FROM THE DATE OF ADMISSION OF THE

APPLICATION
 APPOINTMENT OF
RESOLUTION PROFESSIONAL

NCLT appoints an interim Insolvency Professional (IP) upon confirmation by

the Insolvency and Bankruptcy Board (hereinafter, “the Board”) within 14
days of acceptance of application. Interim IP holds office for 30 days only.
Interim IP takes control of the debtor’s assets and company’s operations,
collect financial information of the debtor from information utilities.
[Sections 16 and 22]
 MORATORIUM

The NCLT, under Section 14, orders a moratorium on the debtor's operations
for the period of the CIRP. This operates as a 'calm period' during which no
judicial proceedings for recovery, enforcement of security interest, sale or
transfer of assets, or termination of essential contracts can take place against
the debtor.

If an order for approval of resolution process or for liquidation of the

company is passed, the moratorium will cease to exist.
 AFFAIRS TO VEST IN IRP
From the date of his appointment:

• The affairs of the company will vest in the IRP;

• Powers of the Board shall stand suspended and be executed by IRP

• Officers and Staff will report to the IRP;

• Financial institutions (Banks) will act as per the instructions of the IRP

• IRP shall execute documents in the name of the company and he may
take actions as may be specified by Board;

• IRP can have access to books of accounts and other relevant records of
the company [ Section 17 of IBC].
 DUTIES OF THE IRP
Section 25 lays down the duties of the Resolution Professional, some of
which are:
• Collect information with regard to the assets, finances and operations
of the company for determining the financial position;
• Invite and receive claims submitted by creditors;
• Constitute the Committee of Creditors;
• Take control of the assets of the company;
• Ensure that the company remains a going concern;
• Run the business by appointing professionals;
• Maintain an updated list of claims;
• Convene and attend all meetings of the Committee of Creditors;
• Prepare the Information Memorandum in accordance with section 29;
• Invite prospective lenders, investors, and any other persons to put
forward resolution plans;
• Present all resolution plans at the meetings of the committee of
creditors;
 COMMITTEE OF CREDITORS
The Committee of creditors will take all decisions based on majority which
shall not be less than 51%.

The COC will hold first meeting within 7 days of constitution of COC.

The COC may confirm the IRP as Resolution Professional (RP) in the first
meeting or propose another name as RP which will be decided by NCLT on
confirmation from Board.
[Section 21]
• INFORMATION MEMORANDUM
The RP will prepare an information memorandum containing relevant
information.

• RESOLUTION PLAN

(a) Based on the IM, a resolution plan is prepared

(b) The RP submits the resolution plan to the COC

(c) The COC may approve/ reject the plan

(d) The outcome is submitted to the NCLT

 RESOLUTION PLAN
• The resolution plan should at least consist of Payment of costs of RP/
IRP/ cost of supply of essential goods/ amounts due to persons affected
by moratorium and costs directly related to CIRP in priority of
repayment of other debts of corporate debtors.
• Repayments to operational creditors, which should not be lesser than
the amount to be received by them in case of liquidation of the
corporate debtor
• Provide for management of corporate debtor, implementation and
supervision of the resolution plan after its approval
• Should not contravene any of the provisions of the law for the time
being in force
• The resolution plan must comply with applicable requirements as
specified by the Board
• Term of the Plan and its implementation schedule
• Management and control of the business of the CD during this term
• Adequate means for supervisions its implementation
APPROVAL OF RESOLUTION PLAN BY NCLT
If NCLT approves the resolution plan, the same is binding on the company, its
employees, creditors, guarantors and other stakeholders. NCLT may reject
the resolution plan if the same is not in accordance with the provisions of
IBC.

APPEAL
An appeal may be filed before NCLAT against the order of NCLT within a
period of 30 days, extendable to another 15 days by NCLAT on being satisfied
that there was sufficient cause for not filing the Appeal within 30 days.

An appeal from the order of NCLAT shall lie before the Supreme Court and
shall be filed within a period of 45 days from the order of NCLAT, extendable
to another 15 days on the Supreme Court being satisfied that a person was
prevented by sufficient cause from filing within 45 days.
 LIQUIDATION UNDER IBC
Where the NCLT is satisfied that resolution plan does not meet requirement
of the Code, it may, by order, reject the plan. On approval of resolution
plan, the IRP is closed. When IRP is closed, the moratorium ceases to have
effect, resolution professional is relieved of his duties and all documents
related to IRP are consigned to the Board.

The NCLT has power to order liquidation if resolution plan has been rejected
as it fails to meet the requirements of the Code; or maximum time allowed
for resolution process has expired without any resolution plan being agreed
upon; or during the IRP but before confirmation of resolution plan
Committee of Creditors through resolution professional intimates
Adjudicating Authority to about its decision to liquidate the corporate
debtor; or when the corporate debtor, or any person connected with
corporate debtor, contravenes the approved resolution plan.
Where the Resolution Process fails and liquidation proceedings have
started the resolution professional continues to act as liquidators, but,
new liquidator is appointed in case IRP has failed because it did not meet
requirement of law or there is a complaint against resolution professional.

When the business operations of the corporate person have been

completely wound up and its assets have been completely liquidated, the
liquidator shall make an application to the NCLT for dissolution of
corporate person. On such application being filed, the NCLT shall order
that corporate person shall be dissolved from the date of the order. The
order of NCLT has effect of dissolving the corporate person from the date
of order.

Order of dissolution is required to be forwarded within seven days

(fourteen days in case of voluntary liquidation) from the date of order to
the authority with which the corporate debtor (corporate in case of
voluntary liquidation) is registered.
 AVOIDANCE OF PREFERENTIAL
TRANSACTIONS
When liquidator or resolution professional, as the case be, is of the opinion
that a corporate debtor during the period specified under the Code has
transferred any property or an interest thereof of the debtor to specified
persons on account of antecedent debt or liability in a manner putting
specified person in a beneficial position than it would have been in the event
of a distribution of assets in liquidation (preferential transaction), he shall
apply to NCLT for avoidance of such transactions.

When an application for avoidance of preferential transaction is made, the

NCLT may, inter alia by an order require that property transferred be vested
in the corporate debtor; or release or discharge security interest created by
the corporate debtor; or require payment by any person of sum in respect of
benefit received by him from such transaction; or restore the position of
guarantor whose debts were released or discharged; or direct providing
security or charge on any property for discharge of any debt under order.
 IFCI’S RECOVERY UNDER
RESOLUTION PLANS

• Bhushan Steels Limited – Rs. 281.71 Crore

• Basai Steels and Power Limited – Rs.0.68

Crore
 CIRP
In case of rejection of
In case of approval of plan, COC may
Order of Admission
plan, moratorium choose to allow IRP
by NCLT,
ceases to request NCLT for
Commencement of
Moratorium, extension of 90 days
appointment of IRP

In case of failure to
Acceptance of claims, Deliberation on the submit new plan or
Appointment of Plan by COC, in case of rejection of
Committee of revision/ approval/ plan, default
Creditors (COC) by rejection thereof, committed under
IRP intimation to NCLT Plan, NCLT to be
about outcome informed

Preparation of
Resolution Plan,
First COC meeting Submission of Plan NCLT to order
before COC by IRP Liquidation
IMPORTANT JUDGEMENTS
 M/s. Surendra Trading Company Ltd. v. J.K. Jute
Mills Ltd.
Supreme Court : 19.09.2017
Question of law: “Whether time limit prescribed in IBC for admitting or
rejecting a petition or initiation of insolvency resolution process is
mandatory?”
The Apex Court upheld the NCLAT decision wherein:
• Timeline prescribed u/s 12- 180+90 days is mandatory
• Time given to CIRP is mandatory
• Further, Provisos to Section 7(5), 9(5) and 10(4) – 7 days time to
remove defect were held to be directory subject to a caveat.
The relevant excerpt of the judgement is as follows:
“ Further, we are of the view that the judgments cited by the NCLAT and
the principle contained therein applied while deciding that period of
fourteen days within which the adjudicating authority has to pass the
order is not mandatory but directory in nature would equally apply while
interpreting proviso to subsection (5) of Section 7, Section 9 or sub-
section (4) of Section 10 as well. After all, the applicant does not gain
anything by not removing the objections in as much as till the objections
are removed, such an application would not be entertained. Therefore, it is
in the interest of the applicant to remove the defects as early as possible.
Thus, we hold that the aforesaid provision of removing the defects within
seven days is directory and not mandatory in nature. However, we would like
to enter a caveat.
We are also conscious of the fact that sometimes applicants or their counsel
may show laxity by not removing the objections within the time given and
make take it for granted that they would be given unlimited time for such a
purpose. There may also be cases where such applications are frivolous in
nature which would be filed for some oblique motives and the applicants may
want those applications to remain pending and, therefore, would not remove
the defects. In order to take care of such cases, a balanced approach is
needed.
Thus, while interpreting the provisions to be directory in nature, at the
same time, it can be laid down that if the objections are not removed
within seven days, the applicant while refilling the application after
removing the objections, file an application in writing showing sufficient
case as to why the applicant could not remove the objections within seven
days. The aforesaid process indicated by us can find support from the
judgment of this Court in Kailash v. Nanhku & Ors., (2005)…..”
 Canara Bank Vs Deccan Chronicle Holdings Ltd
(NCLAT-14.09.2017)

“…’moratorium’ will not affect any suit or case pending before the Hon’ble
Supreme Court under Article 32 of the Constitution of India or where an order
is passed under Article 136 of Constitution of India.

‘Moratorium’ will also not affect the power of the High Court under Article
226 of Constitution of India. However, so far as suit, if filed before any High
Court under original jurisdiction which is a money suit or suit for recovery,
against the ‘corporate debtor’ such suit cannot proceed after declaration of
‘moratorium, under Section 14 of the I&B Code.
 SBI vs. Monnet Ispat & Energy Limited
Important outcomes of MA filed by IFCI and ICICI in NCLT petition:

The Corporate Debtor had given a Corporate Guarantee and Letter of

Comfort to IFCI & ICICI respectively to secure facilities sanctioned to Monnet
Power. Guarantee and LOC were invoked by IFCI & ICICI post admission of
NCLT petition filed by SBI. Claim of IFCI and ICICI was rejected by IRP on the
ground that the right should be matured as on date of admission i.e.
Guarantee can’t be invoked post admission of NCLT petition. MAs filed by
IFCI and ICICI were allowed with following orders:

• Claim means a right to payment/ right to remedy for breach of contract

notwithstanding whether it is matured or not.
• Claim towards Guarantee to be accepted even if Guarantee is invoked
post admission/Commencement of Insolvency Resolution process.
• Non invocation of Guarantee as on date of admission will not extinguish
the right of creditor to proceed against the Guarantor.
 IDBI Bank Vs Jaypee Inftratech Ltd (JIL) and
Anuj Jain , Resolution Professional of Jaypee
Infratech Ltd Vs Manoj Gaur and Others

Application filed by Anuj Jain, Resolution Professional in case of Jaypee

Infratech Ltd. seeking directions of the Hon’ble Court that the transactions
entered into by the promoters and directors of the Corporate Debtor, i.e. JIL
creating mortgage of 858 acres of immovable property owned and in
possession of the CD to secure the debt of a related party, i.e. Jaiprakash
Associates Ltd. (JAL) by way of mortgage deeds are fraudulent and wrongful
transactions.

Directions have been sought for declaration of transactions as Preferential

Transactions under section 43 of the Code and pass orders under section 44
against the Lenders of Jaiprakash Associates Limited in whose favour
mortgage of the said land was created to Release or discharge security
interest created by the CD over its immovable properties towards securing
the Financial assistance granted to JAL
The Mortgage was created without any counter guarantee from a related
party.

It was contended that the mortgage was in the nature of asset stripping
and entered into with an intent to defraud the creditors of the CD.

NCLT held that the transactions entered into were preferential,

undervalued and fraudulent and ordered release and discharge of the
security interest created by the CD in favour of the Lenders of JAL.

The Order also mentioned that the properties mortgaged by way of

preferential and undervalued transactions shall from now on deemed to be
vested in the CD.

The matter was appealed to NCLAT.

 BANK OF BARODA VS. BINANI CEMENTS

• Binani Cement has been undergoing insolvency proceedings initiated by

NCLT since July 2017 for resolution under the IBC, and owes more than
₹6,500 crore to its lenders

• In February, UltraTech and an equal joint venture between Dalmia Bharat

and Bain-Piramal’s India Resurgence Fund had separately bid for Binani
Cement.

• The Dalmia consortium had emerged as the preferred bidder with a bid
of Rs 6,300 crore, despite UltraTech raising its offer to Rs 7,266 crore.
Subsequently, UltraTech entered into an out-of-court settlement with
parent Binani Industries, which Dalmia Bharat has challenged.

• NCLT, Kolkata on 2nd May allowed the resolution professional and

committee of creditors (CoC) for Binani Cement to consider the revised
resolution plan submitted by UltraTech, while offering Rajputana
Properties an opportunity to revise its resolution plan of ₹6,930 crore.
UltraTech Cement’s revised offer was at ₹7,900 crore, against its earlier
bid of ₹7,200 crore.
• Dalmia Bharat-controlled Rajputana Properties Pvt. Ltd had moved
NCLAT in May against the 2 May order of NCLT .NCLAT’s passed
interim order stating that during the pendency of Dalmia Bharat’s
appeal, the CoC can approve any plan it deems fit but that will be
subject to its final decision.
• Lenders of Binani Cement Ltd. On 30.05.3018 approved the
resolution plan submitted by Ultratech Cement case as part of the
insolvency resolution process.
• The Supreme Court on 04.07.2018 also said that Binani Cement's
Committee of Creditors (CoC) is not debarred from considering the
revised Ultratech bid to acquire the company but restrained it from
taking a final decision. Supreme Court on 4th July directed NCLAT to
adjudicate upon all issues in the Binani Cement insolvency case,
including the question of UltraTech Cement’s eligibility under
Section 29A as well the legality of its bid, at the earliest and
transferred the matter from NCLT’s Kolkata which was set to hear
the issues on 9 July, to the insolvency appellate authority in New
Delhi.
The National Company Law Appellate Tribunal (NCLAT) deferred the
hearing of Binani Cement Ltd insolvency case till 20 July as the file
related to the case had not been sent by National Company Law
Tribunal (NCLT) Kolkata, which was hearing the matter before NCLAT.

Issues to be decided by NCLAT in the NCLT petition filed by Bank of

Baroda against Binani Cement Limited
• Whether higher bids can be accepted post closure of bidding
deadlines.
• Whether out of court settlement is permissible once the Company is
under Insolvency resolution process.
IBC ORDINANCE, 2018:

KEY AMENDMENTS
• The President of India promulgated the Insolvency and Bankruptcy Code
(Amendment) Ordinance, 2018 (Ordinance), which has become effective
from 6th June, 2018.

• Pursuant to the Ordinance, many of the amendments suggested by

Insolvency Law Committee (ILC), have now been implemented.

• The major changes introduced by the Ordinance are summarized here:

 RELIEF TO HOME BUYERS
AMENDMENT
Section 5(8)(f)
Any amount raised from an
“allotee” in a “real estate
project” shall come under
the definition of financial
debt pursuant to
explanation inserted to
section 5(8)(f) of the code.
*’allotee’ and ‘real estate
project’ are defined in RERA
IMPLICATIONS
• Home buyers and other real estate buyers
were not recognized either as “financial
creditors” (FC) or “operational creditors”
prior to ordinance. Ordinance now provides
that they will be treated as FC.
• As FC, they will have right to participate in
the Committee of Creditors (CoC) through
authorized representatives and have voting
power to the extent of their outstanding
• They would rank as other FCs and would get
recovery in line with them, in case of
liquidation scenario.
With RERA in place along with powers given to
Home buyers under IBC, the regulator has
provided a level playing field to the home
buyers
 INITIATION OF CIRP BY
CORPORATE APPLICANT
AMENDMENT
Section 10(3)(c)
Special Resolution must be
passed by shareholders of
Corporate Debtor with at least ¾ • Directors and officers will need to be
majority mandatory for filing
application u/s 10
IMPLICATIONS
• Board of Director or authorized
representative cannot unilaterally
take the decision to file under IBC
mindful of provisions in the IBC which
impose civil and criminal sanctions on
erstwhile directors and officers of the
company for wrongful trading
 WITHDRAWAL OF
APPLICATIONS ADMITTED U/S
7, 9 OR 10
AMENDMENT IMPLICATIONS
Section 12A • Second chance to Corporate Debtors to
make good on the default that has been
Withdrawal of ongoing CIRP done to the applicant even after
applications with 90% admission by NCLT
approval of CoC
• Lenders may consider taking this route in
cases where they believe that recovery/
value can be maximised through a route
other than IBC
 COC VOTING THRESHOLD
REDUCED
AMEDNMENT IMPLICATIONS
Section 12, 22(2), 27(2), 28(3), 30(4) and 33(2) • Quick decision
making;
Voting threshold reduced from 75% to 66% for
major decisions such as: • Improves prospects
for approval of
(i) Applying for an extension for the CIRP period viable resolution
from 180 to 270 days plan.
(ii) Appointment and replacement of a resolution
professional
(iii) Approving a resolution plan
(iv) Certain actions requiring approval of CoC; and
(v) Passing a resolution for liquidation

Section 12A
Voting threshold reduced to 51% for routine
decisions
 MORATORIUM UNDER CIRP

AMENDMENT IMPLICATIONS
Section 14(3)(b) • Creditors can invoke personal or
corporate guarantees during the
Moratorium during CIRP shall not CIRP
apply to a guarantor in a contract of
guarantee to the corporate debtor • Will provide better co-operation
(guarantees granted by promoter from promoters during resolution
guarantors or other group companies process
which are not undergoing a CIRP)
 APPLICATION OF LIMITATION
ACT, 1963

AMENDMENT IMPLICATIONS
Section 238A Applications for default of time
barred debt would be ineligible
The provisions of Limitation Act, 1963 under IBC
to apply to applications made under
IBC 2016
 DISQUALIFICATIONS OF THE
RESOLUTION APPLICANT
AMENDMENT IMPLICATIONS
Section 29A(c) Provides clarification on the relevant
date for considering one year period
(i) Persons controlling accounts paves way for reduced litigations
which have remained nonperforming
assets (NPA) in excess of one year at Relief to financial entities (funds,
the time of submission of resolution ARCs, etc.) holding equity shares in
plan NPAs
(ii) Disqualification shall not apply to
financial entities which are not Relaxation of Section 29A should
related parties to Corporate Debtor result in more resolution applicants
(iii) This clause is not applicable to a for distressed corporate debtors and
resolution applicant who has improve competition and value
acquired a NPA through corporate
insolvency resolution process during
the last three years before the date
of submission of resolution plan
 AMENDMENT
Section 29A(d)

(i) Conviction for two years or more would be ineligible only if the
offense relates to certain statutes prescribed in the newly introduced
Twelfth Schedule to the IBC

(ii) Conviction for seven years or more would be ineligible irrespective

of statute

(iii) Section 29A(d) will not apply if more than two years have elapsed
from the date of release from imprisonment
 PRACTICAL QUESTIONS THAT
ARISE
1. Can Insolvency Proceedings be initiated if the loan has not been
recalled?

2. Can proceedings against guarantors be initiated without invoking

guarantee?

3. What are the forms to be used for Application to be filed before

National Company Law Tribunal (NCLT) by Financial Creditor,
Operational Creditor and Financial Debtor?

4. How would a Lender proceed in cases where insolvency proceedings

have been initiated against a Company, who has given guarantee to the
Lender for a third party’s loan?

5. Can a Lender proceed against third party mortgages during the

moratorium? Does moratorium apply to the Personal Guarantor’s
assets also?
6. Should creditors trigger the insolvency process upon every default? Or
should they evaluate other options outside the framework?

7. How would the ranking between the first charge secured creditor,
second charge secured creditor and workmen compensation dues be
decided?

8. Can the IP take control of the assets in a subsidiary?

9. What is the time period within which the First meeting of Committee of
Creditors is conducted?

10. Can an applicant withdraw its application for insolvency?

11. What is the remedy available to a Creditor if he fails to submit proof of
claim within the time stipulated in the Public Announcement?

12. Does NCLT have the power to reject Resolution Plans?

13. Can a Creditor withdraw or vary its claim?

14. Can a lender assign its debt after the Insolvency proceedings have been
initiated against a debtor?

15. Can an assignee of a financial contract make an application for CIRP?

16. Whether there can be a bilateral settlement when insolvency

proceedings are underway.
"The IBC, 2016 is emerging as the lynchpin for resolving stressed assets in a
time - bound manner. These developments bode well for allocative efficiency
and financial stability in the medium term even if there is some short-term
pain in the process."
- Viral Acharya (RBI Deputy Governor)

THANK YOU