Author: Aastha Rohera , Jiwaji University , Gwalior (M.P).
ABSTRACT
The old fragmented laws led to the emergence of a comprehensive and unified Insolvency & Bankruptcy Code, 2016 where insolvency is resolved in a time-bound manner with an automatic moratorium upon admission of application. IBC established a mechanism for creditors which makes it creditor-friendly. The Licensed Professionals manage the insolvency proceedings which was a limitation under the Previous Laws. The objective of New Insolvency Laws was less time, lesser loss, and maximum asset utilization. The need for a bound-together law moreover created the macroeconomic issues of developing NPAs and falling credit development which impacted the prospects of a tall development rate. It was inside the background of this that the Indian government presented the Indebtedness and Insolvency Code in 2016 to fathom the issue of NPAs in the brief run and improve the ease of doing trade and development in the medium and long term individually.
Keywords
CIRP, NPA‘S, Resolution Plans, Moratorium, Resolution Professional.
INTRODUCTION
The law of indebtedness in India owes its start to English Law in 1800, following the Administration Act of 1909, which was appropriate to 3 administration towns, whereas the Common Act of 1920 was pertinent to the rest of India.
Later on, the Code repealed the 1909 Act and 1920 Act. In expansion, it amends 11 Acts.
1. Indian Partnership Act,1932
2. The Central Excise Act
3. The Income Tax Act,1961
4. Customs Act
5. Recovery of Debts Due to Banks And Financial Institutions 6. Finance Act
7. SARFAESI Act
8. SICA Repeal Act 2003
9. Payment And Settlements Act
10. Limited Liability Partnership
11. Companies Act,2013
EMERGENCE OF IBC
IBC was required an hour due to major imperatives and no consistency in regulatory arrangements driving to an assortment of administrations leading to a whole handle of indebtedness . . PRE –IBC, Recuperation preparation was moderate and wasteful whereas IBC is an organized follower centering on determination or restoration. Restoration centers on bringing a wiped-out company back to great well-being to spare the company from closing down and to make the company fiscally healthy once more whereas determination centers on finding arrangements for a company that is fiscally battling, not fundamentally cruel making the company monetarily healthy once more and may pick for near down of units. Ancient indebtedness laws make pronged endeavors for restoration of units leading to financial wastage of assets and heaping of the NPA over the long lengths.
PURPOSE OF CODE
a) Provide Determination for Indebted Debtors and Creditors.
b) Create a Platform for Negotiating & Arranging Debtors And Creditors. c) Provide Relief to Creditors for being secure about their payment and alleviation to debtors from undesirable harassment.
FOUNDATION / PILLARS OF IBC
i. PILLAR I:- The adjudicating Authority for corporations is the National Company Law Tribunal (NCLT) while for individuals Debt Recovery Tribunal (DRT)
ii. PILLAR II:- The Insolvency Bankruptcy Board of India (IBBI) is a Regulator that regulates Insolvency Professional Agencies, Insolvency Professionals, Registered Valuers, and Information Utilities.
iii. PILLAR III:- A Class of Regulated persons who play a key role in efficient working in IBC. Such Persons are referred to as Insolvency Professional Agencies and Insolvency Professionals.
iv. PILLAR IV:- Information Utilities that electronically store data about Lenders & Terms of their lending.
RELATIONSHIP BETWEEN INSOLVENCY, BANKRUPTCY, AND LIQUIDATION BANKRUPTCY:- Liquidation is a formal announcement of Indebtedness through court procedures. It is an organized system for settling obligations or announcing bankruptcy.
LIQUIDATION:- Liquidation is moreover known as Winding Up / Disintegration.
In this article, our focus revolved on Part II Dealing with Corporate Insolvency Resolution Process (CIRP)
CONSTITUTIONAL VALIDITY OF IBC, 2016
In the leading case of Swiss Ribbons Pvt Ltd Vs Union of India & Ors. (2019) 3 S.C.R.535, held that the Code is Intrinsically Substantial and is not violative of Article 14 of the Constitution Of India.
Section 53 stipulates the distribution of assets, whereby a differentiation is made between the class of creditors, say, Financial Creditors (FC) and Operational Creditors (OC), based on a fair and intelligible basis. However, Operational Creditors are paid earlier than Financial Creditors. Section 21 states that the constitution of COC comprises only Financial Creditors. Under Section 24 the power to vote in the meeting is given to Financial Creditors only. Generally, Financial creditors are Banks And Financial Institutions. Banks and Financial Institutions dominate the capital Markets of the country with expertise and experience in dealing with the recovery of NPAS. The operational Debt due to Operational Creditors is recoverable in most cases by serving a demand notice. A general ideology behind this is that why harass and bring a company under Insolvency for debts that are tactical, operational, and regular?
HIGHLIGHTS OF CORPORATE INSOLVENCY RESOLUTION PROCESS
1. Insolvency and Liquidation of Corporate Debtor, where a minimum default amount is ₹ 1,00,000. The Central Government by way of notification enhanced the limit to ₹ 1,00,00,000.
2. Corporate Person does not include Financial Service Provider. The Central Govt., by way of notification on 18/11/2019, specifies that Part II of the code applies to NBFCs whose Assets are equal to or more than 500 crores.
3. The Appellate Tribunal Held for Individual surety who has furnished a guarantee against the Corporate Debtor is under Insolvency, the proceedings against a Personal Guarantor be initiated under Part II of IBC,2016 and not under Part III of Code as held in State Bank of India V/s. V. Ramakrishna & Ors Company Appeal (AT)(Insolvency) No. 213 of 2017.
4. Operational Creditors cannot make a direct application to NCLT. The OC is required to first present a demand notice under section 8 and then make an application under section 9 of the code. If any dispute has already existed therein no application can be initiated under section 9 of the code against Corporate Debtor. The Dispute should not be vague, Hypothetical, and an eyewash to derail the proceedings. The same is held in the Leading case of Mobilox Innovations Private Ltd. v. Kirusa Software Private Ltd.. 2018 (1) SCC 353.
5. Allottees under a Real Estate Project for a construction Site are included in the definition of Financial Creditors by way of the Second Amendment Act, of 2018
6. Section 12 A of the Insolvency and Bankruptcy Code,2016 states about the withdrawal of application. An application can be withdrawn either before or after the constitution of COC. After the Constitution of COC, the application can be withdrawn either after or before inviting expression of interest by vote sharing of 90%.
7. The exit route prescribed under section 12 A does not apply to the Resolution Applicant. The procedure mentioned Under Section 12 A applies only to those who have applied under Section 7, section 9, and Section 10 of the code. Held in Maharashtra Seamless Ltd vs Padmanabhan Venkatesh & Ors.(2020) 2 SCR 1157.
8. Section 12 Deals with the Time Limit for Completion of Insolvency Period. The time constraint is a substance of code. The period of 180 days /270 days / 330 days is exceptionally well amplified if it lies in the intrigue of the Corporate Debtor as well as other stakeholders as Liquidation is always a last resort. The same is held in the case of IDBI Bank Ltd v Cyclo Transmission ( NCLT – 7/10/2020).
9. A moratorium is a calm period initiated whereby suits or legal proceedings are set in abeyance to Allow Resolution Professional or Interim Resolution Professional to carry out the responsibilities smoothly. However, Prohibition of Section 14 (1) does not apply to surety in the contract of guarantee. Moreover, the supply of essential goods and licenses, permits, and Quota shall not be suspended or terminated on the ground that the company is undergoing CIRP unless there exists a default in existing dues. The Moratorium shall cease to exist on the date of approval of the Resolution Plan or Liquidation Order.
10. Interim Resolution Professionals shall play crucial roles and responsibilities to appoint Professionals, Modify Old Contracts, give instructions to employees and staff, and Raise Interim Finance. However, those assets that are collateral against the Loan can’t have the consent of creditors if the value of the asset is twice the value of the debt.
11. IRP shall constitute COC after the collation of all claims received against the Corporate Debtor. COC Shall comprise All financial creditors All decisions of COC are generally taken by a vote not less than 51 % of the voting share of financial creditors. COC may ask to furnish information from RP.
12. A Resolution Professional is appointed by the 66 % Voting shares of the Committee of creditors. The Resolution Professional can be the IRP or maybe any other person. Resolution Professional can be Replaced by the same voting share as stipulated above. However, no disciplinary proceedings are pending against RP.
13. A meeting of COC is to be held within 7 days of recording the report certifying the structure of COC. Resolution Professional may organize the meeting of the COC as and when required or upon a requisite from the COC. Participants of the meeting are notified at least 5 days before the date of the meeting. Notice is sent to Members of COC Including Authorized Representatives, Members of Suspended Board, or partners of Corporate Debtor and Operational Creditors (OC) if the aggregate value of their debt is at least 10 % of the total debt. Directors / Partners of Corporate Debtors (CD) can attend the meeting but cannot vote. Upon their non-attendance, the proceedings will not be invalidated. Each Creditor vote is based on their assigned voting share as per the Financial Debt owed by them and assigned by IBBI.
14. Section 29 A States that the Person is Not Eligible to Be a Resolution Applicant. The one who are undischarged insolvent, willful defaulter, Assets classified as NPA’ S, Convicted for an offense, Disqualified as Director under Section 164 of Companies Act, 2013, Undergone Undervalued, extortionate, Preferential & Fraudulent Transactions, failed to make a payment against a debt on invocation of guarantee by the surety any connected person thereof.
15. The Resolution Plan is submitted by the Resolution Applicant, by the Information Memorandum and every plan shall provide for the payment of Insolvency Resolution Process cost in priority. The Resolution Professional shall ensure that effective implementation and supervision of the plan and plan does not contravene the provisions of the law. The Resolution Plan is to be approved by a vote of not less than 66% of the voting share of financial creditors. The approved plan is submitted to NCLT for final approval.
16. Upon approval of the plan by NCLT, the plan is binding on Corporate Debtors, Employees, Members, Creditors, and any Government.
OVERRIDING EFFECT OF CODE
The insolvency code has a superseding impact over all other Acts prevailing in India. Section 238 Of the Code contains a non-obstante clause that states that IBC prevails over any other law in India.
The appellant had borrowed from various Financial Institutions. A corporate debt restructuring plan and Master restructuring Agreement were framed by which funds were to be infused. ICICI filed an Application under IBC for nonpayment. To this an Appellant Reply that they had taken the relief under Maharashtra Relief Undertaking (Special Provision Act),1958 whereby all liabilities unto be suspended up to 18/07/2017. NCLT held that code prevails over all other Local Laws.
Appeal made to NCLAT, which was dismissed. The appeal, therefore, was filed before Apex Court. Held That IBC prevails over all other local Maharashtra Acts and liability of Corporate Debtor is unconditional and not dependent on Master Restructuring Agreement. The same is held in the leading case of M/S. Innovative Industries v ICICI Bank [2017] 8 S.C.R. 33
SIGNIFICANCE OF STUDY– FINDINGS
a) RESOLUTION PLANS :- The number of Determination Plans Beneath CIRP has witnessed an increment I, rising by 42 % from 189 in FY2023 to 269 in FY 2024 making a record tall for CIRP Resolutions. From the Beginning till the conclusion of the Year 2024, 947 Determination plans have been affirmed.
NPA MANAGEMENT: – NPA administration was extreme sometime recently IBC. Recovery forums were inefficient, the legislative system was frail and partner communication was poor. IBC has taught banks and borrowers. Defaulting borrowers are more likely to pay up as they will lose control over their commerce. More loaning has happened as loan specialists are more confident, which is fundamental for business and growth. By Dec 2023, 138 huge focused companies had paid leaders 32.9% of the conceded claims.IBC has diminished net NPAs from Rs 8.96 lac crore in Damage 2018 to Rs 5.77 lac crore in Dec 2020 despite varieties in recuperation rate. The managing an account framework has got a steadiness boost from big-ticket recuperations from corporate defaults, counting Bhushan Steel, Essar Steel, and Jaypee.
CONCLUSION
1. The code set a remarkable benchmark for resolutions. The code ensures timely resolution, licensed professionals, and information utilities.
2. It ensures automatic stay on legal proceedings upon admission of CIRP application, which results in better resolutions and less harassment of debtors.
3. The code ensures adequate participation of Banks and Financial Institutions, being Financial Creditors and leading to low non-performing assets and maximum asset utilization and ensuring better decision-making.
4. Licensed professionals like Resolution Professionals and Insolvency Professionals under IPA which ensures Professionalism.
REFERENCES
Swiss Ribbons Pvt. Ltd. & Anr. v. Union Of India & Ors., (2019) 3 S.C.R.535
https://www.sci.gov.in/supremecourt/2018/4653/4653_2018_Judgement_25-Jan-2019.pdf
Mobilox Innovations Private Ltd. v. Kirusa Software Private Ltd. 2018 (1) SCC 353
https://ibbi.gov.in/webadmin/pdf/legalframework/2018/Aug/The%20Insolvency%20and%20Bankruptcy%20Code%2(Second%20 Amendment)%20Act,%202018_2018-08-18%2018:40:34.pdf
Seamless Ltd vs Padmanabhan venkatesh & ors (2020) 2 SCR 1157 https://digiscr.sci.gov.in/view_judgment?id=OTI4NA
IDBI Bank Ltd v Cyclo Transmission (2020) ibclaw.in 169 NCLT
M/S. Innovative Industries v ICICI Bank [2017] 8 S.C.R. 33 https://digiscr.sci.gov.in/view_judgment?id=MTYyMzU=
IBBI, Insolvency and Bankruptcy Code, PDF.
Economic Times, Creditors Recover ₹3.55 Lakh Crore Till Sept Under Insolvency Law.
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