INITIATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS UNDER SECTON 10 OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016

[Mr. M. GOVINDARAJAN]

Corporate Insolvency Resolution Process (‘CIRP’ for short) against a corporate debtor may be initiated by a financial creditor under Section 7 of the Corporate Insolvency and Bankruptcy Code, 2016 (‘Code’ for Short) or by an operational creditor under Section 9 of the Code.  Section 10 of the Code allows a corporate applicant to file an application if the corporate debtor committed a default.

Section 5(5) of the Code defines the expression ‘corporate applicant’ as-

•  corporate debtor; or
• a member or partner of the corporate debtor who is authorized to make an application for the corporate insolvency resolution process or the pre-packaged insolvency resolution process, as the case may be, under the constitutional document of the corporate debtor; or
• an individual who is in charge of managing the operations and resources of the corporate debtor; or
• a person who has the control and supervision over the financial affairs of the corporate debtor.

Where a Corporate Debtor has committed a default a corporate applicant, shall make an application for initiating the corporate insolvency resolution process against a corporate debtor under section 10 of the Code in Form 6.

Special resolution

The special resolution is to be by shareholders of the corporate debtor or the resolution passed by at least three-fourth of the total number of partners of the corporate debtor, as the case may be, to approve the filing of the application before the Adjudicating Authority.  The special resolution shall be attached with Form 6.

Form 6

The Form No. 6 has three parts.  Part I requires to furnish the particulars of the corporate applicant.  Part II requires furnishing the particulars of proposed interim resolution professional.  Part II requires furnishing of particulars of financial/operational credit, creditor wise.

Part I

Part I requires to furnish the following information-

• Name, address, email id, identification number and address for communication of the corporate applicant;
• Name, address, email id, identification number and address of the registered office of corporate debtor;
• Name and addresses of all Directors, promoters, designated partners of the corporate debtor (as applicable);
• Date of incorporation of corporate debtor;
• Nominal share capital and the paid up share capital of the corporate debtor and/or details of guarantee clause as per Memorandum of Association (as applicable);
• Name and authority of person submitting application on behalf of corporate debtor (enclose authorization);
• Name and authority of person resident in India  authorized to accept the service of process on its behalf (enclose authorization);
• Documentation to show that the corporate applicant is authorized to initiate CIRP;
• Details of corporate debtor as per the Notification under section 55(2) [Fast track  CIRP] of the Code-

1. Assets and income;
2. Class of creditors or amount of debt;
3.  Category of Corporate person;

(where application is under Chapter IV of Part II of the Code.)

Part II

• Particulars of proposed Interim Resolution Professional

• Name, address, email address and registration number of the proposed interim resolution professional.

Part III - Particulars of Financial/Operational debt (creditorwise, as applicable)

• Name(s) of financial/operational creditor(s);
• Address of correspondence of the financial/operational creditor(s);
• Total debt raised and amount in default;
• Date when the financial/operational debt was incurred;
• Particulars of security held, if any, the date of its creation, its estimated value as per the creditor.  Attach a copy of certificate of registration of charge issued by the Registrar of Companies (if the corporate debtor is a company);
• Details of retention of title arrangements, if any, in respect of goods to  which the operational creditor refers;
• Record of default with the information utility, if any;
• List of documents attached to this application in order to prove the existence of financial/operational debt and the amount in default

Declaration

Documents to be attached-

• In case of financial debt, record of default obtained through the information utility or all documents listed in serial number 8 of part –III of this application.
• In case of operational debt, (i) copy of invoice/demand notice served by an operational creditor on the corporate debtor and (ii) record of default obtained through the information utility or all documents listed in serial number 8 of part-III of this application.
• Written communication by the proposed interim resolution professional as set out in Form 2 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.
• Copy of the relevant books of accounts of the corporate debtor evidencing the default to creditors.
• Copies of audited financial statements of the corporate debtor for the last two financial years and the provisional financial statements for the current financial year made upto a date not earlier than fourteen days from the date of the application.
• A statement of affairs made up to a date not earlier than fourteen days from the date of application including the following document, namely:-

•  a list of the corporate debtor's assets and liabilities, divided into such categories as are appropriate for easy identification, with estimated values assigned to each category;
• in the case of any property on which a claim against the corporate debtor is wholly or partly secured, particulars of the claim and its amount, and of how and when the security was created;
• the names and addresses of the financial creditors and operational creditors of the corporate debtor, with the amounts due to each of them;
• particulars of any debts owed by or to the corporate debtor to or by persons connected with it;
• whether any, and if so what, guarantees have been given in relation to the debts of the corporate debtor by other persons, specifying which, if any, of the guarantors is a related party to the corporate debtor and the corporate applicant; and
• the names and addresses of the members and partners of the corporate debtor, as the case may be, with details of their respective shareholdings.

• A copy of-

• relevant extract of any constitutional document or shareholders' agreement that records the authority of the corporate applicant to make this application, where the corporate applicant is a member or partner of the corporate debtor; or
• relevant extract of an employment agreement, constitutional document or fillings made to the Registrar of Companies confirming the authority of the corporate applicant to make this application, where the corporate applicant is an individual in charge of managing the operations and resources of the corporate debtor or has control and supervision over the financial affairs of the corporate debtor.

• Affidavit in support of the application in accordance with the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016.
• Proof that the specified application fee has been paid. - Fee payable is Rs.25,000/-
• Proof that a copy of the application has been served to the Board.

Order

The Adjudicating Authority shall, within a period of 14 days of the receipt of the application, by an order-

• admit the application, if it is complete; or and no disciplinary proceeding is pending against the proposed resolution professional
• reject the application, if it is incomplete or any disciplinary proceeding is pending against the proposed resolution professional.

The Adjudicating Authority shall, before rejecting an application, give a notice to the applicant to rectify the defects in his application within 7 days from the date of receipt of such notice from the Adjudicating Authority.

The Adjudicating Authority after admission of the application filed by a corporate applicant under Section 10 of the Code shall, by an order,

• declare a moratorium for the purposes referred to in section 14;
• cause a public announcement of the initiation of corporate insolvency resolution process and call for the submission of claims under section 15; and
• appoint an interim resolution professional in the manner as laid down in section 16.

Commencement of CIRP

The corporate insolvency resolution process shall commence from the date of admission of the application.

 The corporate insolvency resolution process shall be completed within a period of 180 days from the date of admission of the application to initiate such process.  The resolution professional shall file an application to the Adjudicating Authority to extend the period of the corporate insolvency resolution process beyond 180 days, if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of  66% per cent of the voting shares.  If the Adjudicating Authority is satisfied that the subject matter of the case is such that corporate insolvency resolution process cannot be completed within 182 days, it may by order extend the duration of such process beyond 180 by such further period as it thinks fit, but not exceeding ninety days.  Any extension of the period of corporate insolvency resolution process shall not be granted more than once.

The corporate insolvency resolution process shall mandatorily be completed within a period of 330 days from the insolvency commencement date, including any extension of the period of corporate insolvency resolution process granted under this section and the time taken in legal proceedings in relation to such resolution process of the corporate debtor.

Case laws

M/S. INNOVENTIVE INDUSTRIES LTD. VERSUS ICICI BANK & ANR - 2017 (6) TMI 959 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, MUMBAI, the National Company Law Appellate Tribunal held that the National Company Law Tribunal has discretion to reject the debtor’s application under Section 10 on the ground where the debtor has made an application for CIRP with malicious intention to take advance of the moratorium provisions of the Code. 

M/S. UNIGREEN GLOBAL PRIVATE LIMITED VERSUS PUNJAB NATIONAL BANK, CORPORATION BANK, VIJAYA BANK AND ORIENTAL BANK OF COMMERCE - 2018 (1) TMI 505 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI, it was held that if the corporate debtors do not disclose all the facts including the facts in relation to the debts owed by it to its creditors and were trying to misuse the provisions of the Code for only taking benefit of moratorium on actions against the corporate and its creditors, the application for CIRP under section 10 of the Code would be rejected.

IN RE : M/S. ETERNAL MOTORS PVT. LTD. - 2022 (8) TMI 1454 - NATIONAL COMPANY LAW TRIBUNAL AHMEDABAD - the Adjudicating Authority held that the application filed under Section 10 of the Code can be rejected only on a ground that if the application is incomplete or any disciplinary proceeding is pending against the proposed IRP. In this case no disciplinary proceeding is pending against the proposed IRP i.e. Mr. Manish Santosh Buchasia.  Then the Adjudicating Authority checked whether the application is defect or not. It checked the provisional balance sheet of the corporate debtor as on 30.06.2021 and it found that the corporate person is unable to pay the debt.  A special resolution by the Board of Director of the Corporate Person is produced as Annexure-D wherein all shareholders attended that meeting.  The Adjudicating Authority found that the application is defect free.

However the financial creditors objected the admission on the ground that it is fraudulent initiation of CIRP to get benefit of moratorium in order to halt their recovery proceeding filed in Debt Recovery Tribunal.  The Adjudicating Authority held that only because any recovery proceedings are pending against the Corporate Person is not a ground to reject the application.  There is no material before the Adjudicating Authority to show that the Corporate Person has filed this application with some ulterior motive. There is no dispute to the fact that the debt is more than Rs.1 crore payable by the Corporate Person to the various Banks and the Corporate Person committed default in paying the same.  The Adjudicating Authority held that it is a fit case where the Corporate Person can be admitted in CIRP.