The Insolvency and Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code, 2016 (‘IBC’ or ‘IBC, 2016’ or ‘Code’) was brought into the picture for improvement of ease of doing business in India. It was notified by the Government of India (GOI) on 28.05.2016. This led to the simplification of various processes where instead of companies moving their legal way forward according to a plethora of statutes and forums the creditors were empowered to get back their dues through Corporate Insolvency Resolution Process (CIRP) or Liquidation.
“IBC is concerned with reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance interests of all stakeholders. It also provides for alteration in order of priority of payment for Government dues and establishment of Insolvency and Bankruptcy Board of India (IBBI).”
Corporate Insolvency Resolution Process
Under the IBC, 2016 the Corporate Insolvency Resolution Process (CIRP) is a recovery mechanism for creditors where the main objective of CIRP is reviving a company already experiencing monetary downfall.
“The ‘creditor-in possession’ approach as taken from the UK Bankruptcy Code has been imbibed in a manner that the control of the Corporate Debtor is channeled to a Committee of Creditors (CoC) through the IRP/ RP.”
This revival may take place by raising of funds or such a company being sold off as a ‘going concern’. Various steps prescribed under the IBC, 2016 for CIRP are:
1. Minimum Default Amount
Under Section 4 of the Code it is clearly mentioned that for matters of insolvency or liquidation with regards to the Corporate Debtor, the minimum default amount is rupees one lakh with the higher value not being more than one crore rupees. The recent amendment with respect to this section in the light of COVID-19 has been discussed further in the article.
2. Parties Eligible for Application of Initiation
Section 2 of the Code enumerates body corporates on which IBC is applicable such as a Company (incorporated under the Companies Act,2013 or any previous company law), any other company (governed by such an Act whose provisions are inconsistent with the Code), a Limited Liability Partnership, personal guarantors to corporate debtors, partnership firms, proprietorship firms, individuals(other than those mentioned in Section 2(e)). Section 6 mentions that in the event of a default by the Corporate Debtor the following entities may initiate the CIRP: –
1. A Financial Creditor
2. An Operational Creditor; or
3. The Corporate Debtor himself
3. Steps for Resolution
When default in payment of dues of the creditors takes place then the aforementioned entities make and submit an application of insolvency through a Corporate Applicant or any authorised member before the NCLT (National Company Law Tribunal). A public announcement of CIRP takes place with the required particulars.
3.1 Application to NCLT
Financial Creditors apply under Section 7 of the Code in the prescribed manner. Operational Creditors apply under Section 9 of the Code and in case the Corporate Debtor fails to pay the outstanding dues or in the event of an pre-existing dispute, the Operational Creditors shall serve a notice under Section 8(2) of the IBC, 2016 to the Corporate Debtor before approaching NCLT directly under Section 9 of the Code. In the case of default by the Corporate Debtor the Corporate Applicant under Section 10 may file an application under Section 10 of the Code. In Palgolix Infrastructure Private Limited v, ICICI Bank Limited it was held that any person holding a Power of Attorney is not eligible to file any application under Sections 7, 9 or 10 of the Code.
Acceptance of such an application under any of the aforementioned sections leads to admittance of the matter in NCLT.
3.2. Role of IRP and Moratorium
The NCLT then appoints an Interim Resolution Professional (IRP) under Section 16 of the Code within fourteen days of receiving confirmation from the IBBI. IRP then takes over management of defaulting debtor and such an appointed IRP collects all relevant information with respect to finances of debtor from information utilities. Under Section 13 of the Code declaration of the moratorium, public announcement of CIRP initiation, submission of claims under Section 1 5 of the Code and appointment of IRP take place. Section 18 of the IBC enlists the duties of the IRP. A maximum time period of 330 days to conduct this entire process has been specified by the Code also an extension of 90days is given provided 75% of Financial Creditors positively vote for it. An IRP appointed under Section 16 of the IBC can be replaced anytime by COC with majority 75% votes.
In the case of Quinn Logistics India Pvt. Ltd. Vs. Mack Soft Tech Pvt. Ltd. the corporate insolvency resolution process remained stayed for 166 days
“…we hold that the ‘Committee of Creditors’ / ‘Resolution Professional’ rightly requested the Adjudicating Authority to exclude the period of 166 days for the purpose of counting the total period of 270 days. Taking into consideration the stand taken by the parties and the stage of corporate insolvency resolution process, we direct the Adjudicating Authority to exclude 166 days for the purpose of counting the period of corporate insolvency resolution process and thereby allow the Resolution professional / Committee of Creditors further 166 days with immediate effect (i.e. 8th May, 2018) to complete the corporate insolvency resolution process.”
In the case of Vandana Garg Vs. Reliance Capital Ltd. & Anr. it was observed that
“…..as the ‘Corporate Insolvency Resolution Process’ could not proceed in the absence of ‘Resolution Professional’ for 35 days the case of Appellant being covered by decision of this Appellate Tribunal in “Quinn Logistics India Pvt. Ltd.”, we allow the prayer as made in this appeal and exclude the period of 35 days for the purpose of counting 180 days or 270 days of ‘Resolution Process’. We also exclude the period of pendency of 18 days during which the application remained pending before the Adjudicating Authority. Thereby, we exclude the total period of 53 days for the purpose of counting 180 days or 270 days.”
3.3 Submission of Resolution Plan and Involvement of COC
If there happens to be any Financial Creditor who is a related party of defaulting debtor then such creditor has no right to represent, vote or participate in COC constituted by IRP. To be a part of the COC average dues of Operational Creditors should be at least 10% of the debt. The COC within 7 days of its incorporation should decide whether IRP should be continued as RP or should be replaced with someone else. The payment of outstanding debts depends now upon the submission of a Resolution Plan and the Committee of Creditors’(COC) approval to such a resolution plan. Matters like approval of resolution plans and removal of RP require at least 66% majority consent and matters like ratification of costs, etc. require at least 51% consent as mentioned under section 21(8) of the Code. If such submission or approval does not take place then subject to the order of the tribunal commencement of liquidation is the only option left.
The simple dictionary meaning of Moratorium is ‘temporary prohibition of an activity’ and under Section 14 of the Code declaration of moratorium takes place to put creditor action on hold while possibility of rehabilitation by bankruptcy code is being assessed-section. The moratorium shall come into effect from date of the order passed by NCLT till completion of CIRP. During the process of CIRP if at any time the Committee of Creditors (COC) approves liquidation then moratorium period ceases from the date of such approval.
Amendments to CIRP during COVID-19
Amendments were brought about in the Code in order to combat this extended period of lockdown due to the Novel Coronavirus outbreak.
Introduction of a New Regulation
The IBBI inserted Regulation 40C as a part of insolvency laws called the Insolvency and Bankruptcy Board of India Regulations 2020. Through this the Central Government clearly states that in times of Corona outbreak the period of lockdown shall not be counted in the time line of any activity related to the CIRP.
In the present scenario the IBC has granted a time period of 330 days for the tasks of finalizing judicial processes (be it litigation or judicial). Beyond this time period the company will automatically fall under liquidation.
“Though the Amendment Act provides for a time period of 30 days from March 13, 2020 to rectify all applications filed post December 28, 2019 to comply with such minimum threshold requirements for financial creditors, it is pertinent to note that the Hon’ble Supreme Court has on March 23, 2020 directed the period of limitation in all proceedings shall stand extended with effect from March 15, 2020 till further orders, in light of the novel coronavirus outbreak and nationwide lockdown in effect currently in India.”
Introduction of Minimum Thresholds for Financial Creditors
Section 21(6) of the Code originally deals with extension of terms of financial debt in a consortium arrangement or syndicated facility where a single trustee or agent acts for all Financial Creditors with a further enumeration of the roles of such a Financial Creditor. The recent Amendment states that Financial Creditors who are a part of COC consisting of other 10 members apart from those included specifically under Section 21(6) of the IBC and Financial Creditors whose financial debt lies in nature of securities/deposits. An appointed trustee/agent acts on the behalf of such Financial Creditors can jointly file CIRP application with:
1)not less than 100 such creditors of the same class; or
2)not less than 10% of total such creditors; whichever being lesser.
This is not applicable on any financial facility extended to being a part of consortium arrangement or syndicated facility according to Section 21(6) of the IBC.
Increase of Minimum Threshold Amount for invoking CIRP
The minimum threshold amount for invocation of CIRP has been increased from one lakh to one crore by the GOI. This recent move was taken so as to exclude micro, small and medium enterprises (MSMEs) from being admitted under Section 4 of the IBC.
Suspension/Termination of Concessions, Licenses
Under Section 14 of the IBC, the Amendment Act introduced an amendment wherein concessions, licenses, permissions, clearances and similar grants/rights given by any governmental/statutory authority, is not to be suspended on the grounds that debtor is insolvent even if all such dues are being paid. The payment of such dues can be paid as ‘insolvency resolution process costs’. These costs are incurred by the resolution professional for running of corporate debtor’s business as a going concern under the IBC. The advantage of this amendment lies in the fact that business of the Corporate Debtor is still under operation as a going concern even during the moratorium period thus leading to successful insolvency resolution of Corporate Debtor.
CHANGED TIME PERIODS FOR APPOINTMENT OF IRP Change in time
Section 16 of the Code has been amended by the Amendment Act in order to provide for increased time for appointment of the IRP. The Code earlier provided for a time period of 14 days from the date of passing of the admission order for IRP’s appointment by NCLT. Since it has been observed that most of the CIRPs are never really completed within the 270-day time period (as prescribed earlier under the IBC) thus arose the need for this amendment.
 Preamble of the IBC,2016
 Company Appeal (AT) (InsoL) No. 30,37 & 54 of 2017
 Company Appeal (AT) (Insolvency) No. 185 of 2018
 Company Appeal (AT) (Insolvency)No. 603 of 2019
 Anonymous, Companies under IBC get 17-day window;timelines deferred amid coronavirus lockdown, Business Today, March 30,2020 available at https://www.businesstoday.in/current/economy-politics/companies-under-ibc-get-17-day-window-timelines-deferred-amid-coronavirus-lockdown/story/399554.html?utm_source=recengine&utm_medium=WEB&referral_sourceid=400527&referral_cat=Columns, Last Visited on May 5,2020
 Ajay Shaw, Ashish Pahariya and Soham Mookherjee, The Viewpoint: Government of India announces key amendments to the Insolvency and Bankruptcy Code,2016, Bar and Bench, April 23,2020, available at https://www.barandbench.com/view-point/the-viewpoint-government-of-india-announces-key-amendments-to-the-insolvency-and-bankruptcy-code-2016, Last visited on May 5,2020