Section 10 - Corporate Insolvency Resolution Process (CIRP) under IBC, 2016

 

Section 10 of the Insolvency and Bankruptcy Code, 2016 permits the corporate debtor to file for initiation of the corporate insolvency resolution process on the occurrence of default. This provision enables a financially stressed company to proactively seek resolution through the adjudicating authority, rather than waiting for creditors to initiate action.

Requirements:

The corporate debtor is required to furnish clear evidence of default in debt repayment, such as loan agreements, credit facility documents, and records demonstrating non-fulfilment of payment obligations. The minimum default amount must be ₹1 crore.

Before filing, the corporate debtor must obtain formal authorization—either through a special resolution passed by shareholders, a board resolution, or, in the case of an LLP, by approval of at least three-fourths of its total partners.

Along with the application, the corporate debtor must submit detailed financial information, including audited financial statements, a list of creditors, and particulars of all outstanding debts. The consent of a proposed Interim Resolution Professional (IRP), who must declare the absence of any conflict of interest, should also be enclosed.

Procedure:

1. The corporate debtor begins by passing a formal resolution – either a special resolution by the shareholders or a board resolution – authorizing the initiation of insolvency proceedings.
2. The company then prepares an application and compiles necessary documents including evidence of default, financial statements, and details of all creditors. Simultaneously, the corporate debtor selects and obtains consent from an Interim Resolution Professional who will manage the process in Form 2.
3. The application is then filed with the National Company Law Tribunal.
4. The NCLT scrutinizes the application to verify if all procedural and documentary requirements are met. During this phase, the tribunal may seek clarifications or reject incomplete applications.
5. The NCLT shall decide on admission within 14 days.
6. Upon admission, moratorium is declared under Section 14, and the tribunal appoints the Interim Resolution Professional who takes over management of the corporate debtor and commences the corporate insolvency resolution process under court supervision.

Time Limit:

The National Company Law Tribunal (NCLT) shall decide whether the application should be admitted or rejected within 14 days from the date it is received. During this period, the Tribunal reviews the evidence of default, checks whether the application and documents submitted are complete, and verifies that there are no disciplinary proceedings pending against the proposed IRP. If all requirements are satisfied, the application is admitted. If any shortcomings are found, the applicant is given 7 days to rectify them before a final decision is taken.

Section 8 & 9 - Corporate Insolvency Resolution Process (CIRP) under IBC, 2016

 

Section 8 of the Insolvency and Bankruptcy Code, 2016 deals with the process to be followed by an Operational Creditor before initiating Corporate Insolvency Resolution Process (CIRP) against a corporate debtor. This section mandates that an operational creditor must first deliver a demand notice or invoice demanding payment to the corporate debtor before filing an application to NCLT.

An operational creditor (e.g., supplier or service provider) can issue a demand notice to the company if they owe money and have defaulted.

Requirements:

Before filing an application under Section 9, an operational creditor must:

1. Deliver a Demand Notice of unpaid operational debt or copy of invoice demanding payment to the corporate debtor. The notice must clearly state the details of operational debt and the amount in default.
2. The notice can be sent by:

a) Hand delivery, registered post, or speed post at the registered office of the corporate debtor, or

b)  Electronic mail (email)

This notice must comply with the format prescribed under the Code, including clear identification of the debt and outstanding amount. The operational creditor must also ensure that the corporate debtor has not paid the amount or raised a valid dispute within 10 days of receiving the notice.

Procedure:

The operational creditor initiates the process by issuing a formal demand notice or invoice to the corporate debtor specifying the outstanding amount payable. This notice must be served in the manner prescribed by law and should include details such as the amount due, invoice date, and nature of the debt. Once served, the operational creditor must wait for a period of ten days, during which the corporate debtor can either pay the amount or respond by raising a legitimate dispute supported by documents. If the corporate debtor fails to make payment or raise a valid dispute within this time frame, the operational creditor is entitled to move to the next step of filing an application under Section 9 to initiate insolvency proceedings.

Time Limit:

If no payment or dispute, proceed to file an application under Section 9.

Section 7- Corporate Insolvency Resolution Process (CIRP) under IBC, 2016

Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) empowers a Financial Creditor to initiate the Corporate Insolvency Resolution Process (CIRP) against a Corporate Debtor in case of default. The objective of this provision is to provide a time-bound mechanism for the resolution of insolvency to maximize value and ensure financial discipline among debtors. A financial creditor (e.g., a bank or lender) can request the National Company Law Tribunal (NCLT) to start the insolvency process if the company owes them money and has defaulted on repayment.

As per Section 5(7) of the IBC, a financial creditor is any person to whom a financial debt is owed and includes an assignee or transferee of such debt.

Requirements:

Existence of Default: There must be a default by the Corporate Debtor in repayment of a financial debt.

Minimum Threshold:

• The default amount should be at least ₹1 crore (as per the current notification under Section 4 of IBC).
• For real estate allottees (homebuyers), at least 100 allottees or 10% of total allottees, whichever is less, must jointly apply.

The financial creditor must furnish records from an Information Utility (IU) or other documentary evidence of default.

In addition, the financial creditor is required to nominate an Interim Resolution Professional (IRP) to oversee the affairs of the corporate debtor during the insolvency proceedings. The proposed IRP must submit a written consent to act in the role, along with a declaration confirming the absence of any conflict of interest. All these documents must be duly compiled and attached to the application submitted to the NCLT to meet the statutory requirements for its admission.

Procedure:

1.     Filing of Application with NCLT

The Financial Creditor files an application in Form 1 before the Adjudicating Authority (NCLT) along with the prescribed fee and documents.

2.     Service of Copy to Corporate Debtor & IBBI

A copy of the application is served to the Corporate Debtor and the Insolvency and Bankruptcy Board of India (IBBI).

3.     Admission or Rejection by NCLT

The NCLT may determine the existence of a default within 14 days of receiving the application. If the Tribunal is satisfied that a default has occurred and the application is complete in all respects, it shall admit the application and commence the CIRP. If any deficiencies are found, the applicant is allowed 7 days to rectify them.

4.     Commencement of CIRP

The CIRP commences from the date the NCLT admits the application. A moratorium under Section 14 is imposed, restricting legal proceedings, recovery actions, and enforcement of security interests. A public announcement is then made inviting claims from creditors, and the Interim Resolution Professional (IRP) assumes control of the Corporate Debtor’s management.

Time Limit:

The NCLT may form its view on the application within 14 days from the date of its receipt.

Once the application is admitted and CIRP begins, the entire resolution process is to be completed within a period of 180 days. This timeline can be extended by a further period of up to 90 days, but only once, and only if the Committee of Creditors (CoC) approves the extension with the prescribed majority and NCLT grants such extension.

Thus, the maximum statutory time limit for completion of CIRP is within 330 days, including time taken for litigation process. The objective of this fixed timeline is to ensure speedy resolution and avoid prolonged insolvency situations.

Voluntary Liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016

 

Voluntary liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016 read with Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 allows a solvent company to close its operations on its own. This means the company is not in financial distress and is able to pay off all its dues. It is a formal process that a company chooses to follow when it decides to shut down business activities permanently, usually due to internal business decisions or the end of its purpose.

Requirements

To initiate voluntary liquidation under this section, a company must meet the following key conditions:

1.   The company must not be in financial default. It should be in a position to pay all its debts from its existing assets.

2.  A majority of directors must formally declare that the company is solvent. They must confirm they have reviewed the company's financial position and believe that the company can pay off its debts fully and is not closing to deceive or harm anyone.

3.  The declaration of solvency by the directors must be supported by documents including recent audited financial statements, a report from a registered valuer on the company’s assets (if any), and disclosures of any legal or regulatory matters still pending.

 

4.  A special resolution must be passed by the shareholders in a general meeting approving the voluntary liquidation and appointing a liquidator to carry out the process.

5.  If the company owes any money to any creditor, the approval of creditors representing at least two-thirds of the total debt value is also required.

Procedure

Once the requirements are met, the following steps are followed:

1. The directors make a formal declaration of solvency with supporting documents in a duly held Board Meeting of the Company.

2.  The shareholders approve the decision through a special resolution and appoint a professional liquidator in the General Meeting, within 04 weeks of the Declaration by Directors.

 

3.   If the company has creditors, their approval must also be obtained within 07 days after the shareholders’ resolution.

 

4.  The decision to liquidate is then reported to the Registrar of Companies and the Insolvency and Bankruptcy Board of India, within 05 and 07 days respectively.

 

5.    A public advertisement is issued within 05 days inviting any claims from the stakeholders of the company within 30 days. The liquidator receives and verifies these claims and prepares a preliminary report within 45 days followed by a list of stakeholders of the company within 75 days from the liquidation commencement date.

 

6.   The liquidator then proceeds to sell the company’s assets (if any), settle debts, and distribute any remaining funds to the shareholders.

 

7.   Once everything is completed, the liquidator prepares a final report and submits it to the relevant authorities including the National Company Law Tribunal, along with the dissolution application.

 

8.  After reviewing the submitted dissolution application, the tribunal passes an order formally dissolving the company.

 

9.  A copy of the dissolution order is sent to the Registrar of Companies, and the liquidator is responsible for maintaining the records for a fixed period after closure.

Time Limit

The voluntary liquidation process as per the regulations is stipulated to be completed within a defined period. If the company has creditors involved, the process should ideally be completed within 270 days from the date of approval. If there are no creditors, it must be completed in about 90 days.