The Insolvency and Bankruptcy Code: Cause and effect

Source: The Hitavada      Date: 12 Mar 2018 10:15:40


By CA Swapnil Agrawal,

With the new code becoming operational, it amended various acts and laws related to insolvency resolution of corporate persons, partnership firms and individuals and provided resolution related to it in a time bound manner for maximization of value of assets as well as to set priority of payments to various stakeholders. Some of the salient features of the code are as discussed -

Q. Who all are covered under the new code ?
A. The new code covers corporate persons, partnership firms and individuals.
However presently the sections of the code related to partnership firms and individuals have not been notified. So as on date only corporate persons like companies, imited liability partnership (LLPs), etc., are

Q. What is the minimum amount for which claim can be made?
A. This code shall be applicable on corporate persons where minimum amount of default is Rs 1 lakh and to partnership firms and individuals where minimum amount of default is Rs 1,000. So any person having undisputed claim of Rs 1 lakh or more from corporate debtor or Rs 1,000 or more from partnership firm or individuals can apply under this law. This minimum amount may be increased by Central Government vide notification if it deems fit to it.
However sections applicable to partnership firms and individual insolvency are not yet

Q. Who can apply under the code?
A. Any person having undisputed default of Rs 1 lakh and above can apply. It can be corporate debtor itself, or any operational creditor, or any financial creditor.

Q. Where an application can be made?
A. The application under the code with reference to corporate insolvency can be made to the concerned National Company Law Tribunal (NCLT).
And the application under the code for partnership firms and individuals can be made to concerned Debt Recovery Tribunal (DRT) once the sections for firms and individuals are notified.

Q. What are the procedure to make application with NCLT?
A. A corporate debtor itself may initiate Corporate Insolvency Resolution Process (CIRP) by filing an application with the adjudicating authority which is NCLT.
A financial creditor may initiate the Corporate Insolvency Resolution Process by filing an application before the NCLT with the proof of default on debt.
An operational creditor needs to deliver to the corporate debtor a demand notice or a copy of an invoice of unpaid debt demanding payment of default amount.
If after the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment, the operational creditor does not receive payment from the corporate debtor or notice of existence of a dispute, it may initiate Corporate Insolvency Resolution Process by filing an application with the NCLT.

Q. Who is an Insolvency Resolution Professional?
A. Insolvency Resolution Professional (IRP) is a person who has obtained membership of Insolvency and Bankruptcy Board of India (IBBI) as well as any insolvency professional agency formed under the code. IRP has to qualify National Insolvency Exam or Limited Insolvency Exam and should also have minimum years of professional experience which is as per the guidelines of IBBI.

Q. Why Insolvency Professional is required?
A. Under this code only an Insolvency Resolution Professional, who is the member of IBBI also, can be appointed as Resolution Professional, Liquidator, Bankruptcy Trustee, etc. to complete the resolution plan. He is entrusted with requisite powers, responsibilities and duties to complete the resolution process in a time bound manner.

Q. Is there a time limit to complete the resolution process?
A. Yes, there is time line set for entire process under this code. Application for initiation of insolvency process has to be either accepted or rejected by adjudicating authority within 14 days of its receipt.
If accepted, the entire process of resolution has to be completed within a period of 180 days from the commencement, with a maximum one time extension of 90 days with the permission of adjudicating authority. Hence, once the application is accepted, the resolution has to be made within maximum period of 270 days.

Q. What if no resolution plan is approved during the said
A. The adjudicating authority may give liquidation order if no resolution plan is approved during the said period.
This content is for the sole purpose of creating awareness on the subject and must not be used as a guide for taking or recommending any action or decision, commercial or otherwise. Readers are advised to do their own research and / or seek proper professional advice if they intends to take any action or decision in the matters covered in this content.

(The author is a Chartered Accountant and also an Insolvency Professional and can be reached at [email protected])