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.