Study Notes

THE INSOLVENCY &

BANKRUPTCY CODE, 2016
Part 1 Preliminary
&
Part 2 Insolvency Resolution and
Liquidation for Corporate
persons- Chapter II Corporate
Insolvency Resolution Process
Section 1 to 16
Preliminary, Insolvency Resolution and Liquidation for Corporate persons

Section list

Section # Content
1 Short title, extent and commencement.
2 Application
3 Definitions
4 Application of this Part.
5 Definitions.
6 Persons who may initiate corporate insolvency resolution process.
7 Initiation of corporate insolvency resolution process by financial creditor.
8 Insolvency resolution by operational creditor.
9 Application for initiation of corporate insolvency resolution process by operational creditor.
10 Initiation of corporate insolvency resolution process by corporate applicant.
11 Persons not entitled to make application.
12 Time-limit for completion of insolvency resolution process.
13 Declaration of moratorium and public announcement.
14 Moratorium.
15 Public announcement of corporate insolvency resolution process.
16 Appointment and tenure of interim resolution professional.

Framework of the Insolvency and Bankruptcy Code, 2016

 This code consists of 255 Sections, 5 Chapters and 11 Schedules

 Part I Preliminary
 Part II Insolvency Resolution and Liquidation for Corporate persons
 Part III Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms
 Part IV Regulation of Insolvency Professionals, Agencies and Information Utilities
 Part V Miscellaneous

Introduction

 IBC is a consolidated legislation which provides for insolvency resolution process for:
 Individuals,
 Partnership firms,
 LLP, and
 Corporates
 The objective of the Cde is to consolidate and amend the existing framework for
insolvency and bankruptcy by creating a single law

 Acts repealed by the IBC are: -

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Preliminary, Insolvency Resolution and Liquidation for Corporate persons

 Presidency Towns Insolvency Act, 1909

 Provincial Insolvency Act, 1920

 IBC led to the amendment of 11 Legislations: -

 The Indian Partnership Act, 1932
 The Central Excise Act, 1944
 The Income-tax Act, 1961
 The Finance Act, 1994
 The Securitization and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002
 The Sick Industrial Companies (Special Provisions) Repeal Act, 2003
 The Payment and Settlement Systems Act, 2007
 The Limited Liability Partnership Act, 2008
 The Companies Act, 2013
 This Code is called as the Insolvency and Bankruptcy Code, 2016
 It extends to the whole of India
 The Provisions of this Code shall apply to (S.2): -
 any company incorporated under the Companies Act, 2013 or under any
previous company law;
 any other company governed by any special Act for the time being in force,
except in so far as the said provisions are inconsistent with the provisions of
such special Act;
 any Limited Liability Partnership incorporated under the Limited Liability
Partnership Act, 2008;
 such other body incorporated under any law for the time being in force, as the
Central Government may, by notification, specify in this behalf;
 Personal guarantors to corporate debtors;
 partnership firms or proprietorship firms; and
 individuals, other than personal guarantors to corporate debtors

in relation to their insolvency, liquidation, voluntary liquidation or bankruptcy, as the

case may be

Some important Definitions

 Claim s. 2(6) means—

 a right to payment, whether or not such right is reduced to judgment, fixed,
disputed, undisputed, legal, equitable, secured or unsecured;
 right to remedy for breach of contract under any law for the time being in
force, if such breach gives rise to a right to payment, whether or not such
right is reduced to judgment, fixed, matured, unmatured, disputed,
undisputed, secured or unsecured
 Corporate person s. 2(7) means a company as defined in clause (20) of section 2 of
the Companies Act, 2013, a limited liability partnership, as defined in clause (n) of

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sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008, or any
other person incorporated with limited liability under any law for the time being in
force but shall not include any financial service provider;
 Corporate debtor s. 2(8) means a corporate person who owes a debt to any person;
 Debt s. 2(11) means a liability or obligation in respect of a claim which is due from
any person and includes a financial debt and operational debt;
 Default s. 2(12) means non-payment of debt when whole or any part or instalment of
the amount of debt has become due and payable and is not paid by the debtor or the
corporate debtor, as the case may be.
 Financial Institution s. 2(14) means—
 a scheduled bank;
 financial institution as defined in section 45-I of the Reserve Bank of India
Act, 1934;
 public financial institution as defined in clause (72) of section 2 of the
Companies Act, 2013; and
 such other institution as the Central Government may by notification specify
as a financial institution
 Financial Product s. 2(15) means securities, contracts of insurance, deposits, credit
arrangements including loans and advances by banks and financial institutions,
retirement benefit plans, small savings instruments, foreign currency contracts other
than contracts to exchange one currency (whether Indian or not) for another which
are to be settled immediately, or any other instrument as may be prescribed;
 Financial Service s. 2(16) includes any of the following services, namely: —
 accepting of deposits;
 safeguarding and administering assets consisting of financial products,
belonging to another person, or agreeing to do so;
 effecting contracts of insurance;
 offering, managing or agreeing to manage assets consisting of financial
products belonging to another person;
 rendering or agreeing, for consideration, to render advice on or soliciting for
the purposes of—
 buying, selling, or subscribing to, a financial product;
 availing a financial service; or
 exercising any right associated with a financial product or financial
service;
 Financial service provider s. 2(17) means a person engaged in the business of
providing financial services in terms of authorisation issued or registration granted by
a financial sector regulator;
 Financial sector regulator s. 2(18) means an authority or body constituted under
any law for the time being in force to regulate services or transactions of financial
sector and includes the Reserve Bank of India, the Securities and Exchange Board
of India, the Insurance Regulatory and Development Authority of India, the Pension
Fund Regulatory Authority and such other regulatory authorities as may be notified
by the Central Government;

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PART 2: Insolvency Resolution and Liquidation for Corporate Persons

Section 4 to Section 77 of Part II deals with the Insolvency Resolution and Liquidation of
Corporate Persons

Application of this Part (Section 4)

 This Part shall apply to matters relating to the insolvency and liquidation of corporate
debtors where the minimum amount of the default is 1crore rupees
 Central Government specified 10 lakh rupees as the minimum amount of default for the
matters relating to the pre-packaged insolvency resolution process of corporate debtor

Some important Definitions

 Base resolution plan s. 5 (2A) means a resolution plan provided by the corporate
debtor under clause (c) of sub-section (4) of section 54A;
 Corporate applicant s. 5(5) means:
 corporate debtor; or
 a member or partner of the corporate debtor who is authorised 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;
 Corporate guarantor s. 5A means a corporate person who is the surety in a contract of
guarantee to a corporate debtor;
 Financial creditor s. 5(7) means any person to whom a financial debt is owed and
includes a person to whom such debt has been legally assigned or transferred to;
 Insolvency commencement date s. 5(12) means the date of admission of an
application for initiating corporate insolvency resolution process by the Adjudicating
Authority under sections 7, 9 or section 10, as the case may be;
 Operational creditor s. 5(20) means a person to whom an operational debt is owed and
includes any person to whom such debt has been legally assigned or transferred;

Chapter II CORPORATE INSOLVENCY RESOLUTION PROCESS

This chapter consists of section 6 to 32.

Section 6 - Persons who may initiate corporate insolvency resolution process

 Where any corporate debtor commits a default: -

 a financial creditor,
 an operational creditor; or
 the corporate debtor itself

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may initiate corporate insolvency resolution process

Section 7 - Initiation of corporate insolvency resolution process by financial creditor

 Application can be filed individually or jointly with other financial creditors or any other
person on behalf of the financial creditor, as may be notified by the Central Government

may file an application for initiating corporate insolvency resolution process against a
corporate debtor before the Adjudicating Authority when a default has occurred

 Financial creditors under section 21 (6A) (a) & (b) and who are allottees under a real
estate project can make an application for initiating corporate insolvency resolution
process against the corporate debtor. They shall file jointly by not less than 100 of such
creditors in the same class or the allottees under the same real estate project, as the
case maybe, or not less than 10% of the total number of such creditors in the same
class or allotees under the same real estate project, as the case maybe, whichever is
less
 If application has not been admitted by the Adjudicating Authority before the
commencement of the insolvency and Bankruptcy Code (Amendment)
Ordinance, 2019, it shall be modified to comply with the above requirements, as
the case may be, within 30 days of the commencement of the said Ordinance,
failing which the application shall be deemed to be withdrawn before its
admission
 Application should give details of record of default and name of resolution professional
proposed to be appointed as an interim resolution professional and any other information
as may be specified by the Board.
 The NCLT as the Adjudicating Authority shall, within 14 days of the receipt of the
application, ascertain the existence of a default from the records of an information utility
or on the basis of other evidence furnished by the financial creditor.
 Admission of Application: -
 Where the Adjudicating Authority is satisfied that: -
o a default has occurred, and
o application is complete
o there is no disciplinary proceedings pending against the proposed
resolution professional

it may, by order, admit such application.

The Adjudicating Authority shall communicate the order of admission to the

financial creditor and the corporate debtor.
 The corporate insolvency resolution process shall commence from the date of admission
of the application.
 Rejection of application:-
 Where the Adjudicating Authority is satisfied that:-
o a default has not occurred, and
o application is incomplete

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Preliminary, Insolvency Resolution and Liquidation for Corporate persons

o any disciplinary proceedings is pending against the proposed resolution

professional

it may, by order, reject such application.

 The Adjudicating Authority before it rejects an application, through a notice

give an opportunity to the applicant for rectifying the defects in his application,
within 7 days of receipt of notice from the Adjudicating Authority.

Section 8 - Insolvency resolution by operational creditor

 The operational creditor is required to deliver:

 a demand notice of unpaid operational debt or
 copy of an invoice

to corporate debtor in the prescribed manner.

 Demand Notice means a notice served by an operational creditor to the corporate debtor
demanding repayment of the operational debt in respect of which the default has
occurred.
 Action to be taken by the corporate debtor on the receipt of demand notice
 Corporate debtor shall, within a period of 10 days of the receipt of the demand
notice or copy of the invoice bring to the notice of the operational creditor:-
o existence of a dispute and record of the pendency of the suit or
arbitration proceedings filed before the receipt of such notice or invoice in
relation to such dispute;
o the payment of unpaid operational debt:-
 by sending an attested copy of the record of electronic transfer of
the unpaid amount from the bank account of the corporate debtor; or
 by sending an attested copy of record that the operational creditor
has encashed a cheque issued by the corporate debtor.

Section 9 - Application for initiation of corporate insolvency resolution process by

operational creditor.

 If no reply is received within 10 days from the date of delivery of the notice or invoice the
operational creditor may file an application before the Adjudicating Authority for initiating
a corporate insolvency resolution process.
 Documents to be furnished by the operational creditor along with the application:-
 a copy of the invoice demanding payment or demand notice delivered by the
operational creditor to the corporate debtor;
 an affidavit to the effect that there is no notice given by the corporate debtor
relating to a dispute of the unpaid operational debt;
 a copy of the certificate from the financial institutions maintaining accounts of the
operational creditor confirming that there is no payment of an unpaid operational
debt by the corporate debtor, if available; and

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 a copy of any record with information utility confirming that there is no payment
of an unpaid operational debt by the corporate debtor, if available; and
 any other proof confirming that there is no payment of an unpaid operational
debt by the corporate debtor or such other information, as may be prescribed.
 Name of the insolvency professional to be proposed by the operational creditor, to act as
an interim resolution professional.
 The Adjudicating Authority shall, within 14 days of the receipt of the application, by an
order:-
 admit the application and communicate such decision to the operational creditor
and the corporate debtor if:-
o the application made is complete;
o there is no payment of the unpaid operational debt;
o the invoice or notice for payment to the corporate debtor has been
delivered by the operational creditor;
o no notice of dispute has been received by the operational creditor or there
is no record of dispute in the information utility; and
o there is no disciplinary proceeding pending against any resolution
professional.

 reject the application and communicate such decision to the operational creditor
and the corporate debtor, if:-
o the application made is incomplete;
o there has been payment of the unpaid operational debt;
o the creditor has not delivered the invoice or notice for payment to the
corporate debtor;
o notice of dispute has been received by the operational creditor or there is a
record of dispute in the information utility; and
o any disciplinary proceeding is pending against any resolution professional.

 The Adjudicating Authority before it rejects an application, through a

notice give an opportunity to the applicant for rectifying the defects in
his application, within 7 days of receipt of notice from the Adjudicating
Authority.
 The corporate insolvency resolution process shall commence from the date of admission
of the application.

Section 10 - Initiation of corporate insolvency resolution process by corporate applicant.

 If a default is committed by a corporate debtor, a corporate applicant thereof may file an

application for initiating corporate insolvency resolution process with the Adjudicating
Authority.
 Along with the application, the corporate applicant shall furnish:-
 the information relating to its books of account and such other documents for
such period as may be specified;

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 the information relating to the resolution professional proposed to be appointed

as an interim resolution professional; and
 the special resolution passed 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, approving filing of the application.
 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 and no disciplinary proceeding is pending
against the proposed resolution professional; or
 reject the application, if it is incomplete or any disciplinary proceeding is pending
against the proposed resolution professional
o The Adjudicating Authority before it rejects an application, through a
notice give an opportunity to the applicant for rectifying the defects in his
application, within 7 days of receipt of notice from the Adjudicating
Authority.
 The corporate insolvency resolution process shall commence from the date of admission
of the application.
 No application for initiation of corporate insolvency resolution process of a corporate
debtor shall be filed, for any default arising on or after 25th March, 2020 for a period of 6
months or such further period, not exceeding 1 year from such date as may be notified in
this behalf:
 No application shall ever be filed for initiation of corporate insolvency resolution
process of a corporate debtor for the said default occurring during the said
period.
 Provision shall not apply to any default committed under the said sections before
25th March, 2020.

Section 11 - Persons not entitled to make application.

 Persons not entitled to make an application to initiate corporate insolvency

resolution process are: -
 a corporate debtor undergoing a corporate insolvency resolution process or a
pre-packaged insolvency resolution process; or
 a financial creditor or an operational creditor of a corporate debtor
undergoing a pre-packaged insolvency resolution process; or
 a corporate debtor having completed corporate insolvency resolution process
12 months preceding the date of making of the application; or
 a corporate debtor in respect of whom a resolution plan has been approved
under Chapter III-A, twelve months preceding the date of making of the
application; or
 a corporate debtor or a financial creditor who has violated any of the terms of
resolution plan which was approved twelve months before the date of making
of an application under this Chapter; or
 a corporate debtor in respect of whom a liquidation order has been made.

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o a corporate debtor includes a corporate applicant in respect of such

corporate debtor.
o a corporate debtor can initiate corporate insolvency resolution process
against another corporate debtor.

Section 11A Disposal of applications under section54C and undersection 7 or

section 9 or section 10

 Where an application filed under section 54C is pending, the Adjudicating Authority shall
pass an order to admit or reject such application, before considering any application filed
under section 7 or section 9 or section 10 during the pendency of such application under
section 54C, in respect of the same corporate debtor.
 Where an application under section 54C is filed:
 within 14 days of filing of any application under section 7 or section 9 or section
10, which is pending, in respect of the same corporate debtor, then, the
Adjudicating Authority shall first dispose of the application under section 54C.
 after 14 days of the filing of any application under section 7 or section 9 or
section 10, in respect of the same corporate debtor, the Adjudicating Authority
shall first dispose of the application under section 7or section 9 or section 10.
 The provisions of this section shall not apply where an application under section 7 or
section 9 or section 10 is filed and pending as on the date of the commencement of the
Insolvency and Bankruptcy Code (Amendment) Act, 2021

Section 12 - Time-limit for completion of insolvency resolution process.

 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.
 Application to be filed by the resolution professional 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% of the voting shares.
 NCLT if it is satisfied that the subject matter of the case is such that corporate
insolvency resolution process cannot be completed within 180 days, it may by an
order extend the such duration, by such further period as it thinks fit, but not
exceeding 90 days:
 Such 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 such period and the time taken in legal
proceedings in relation to such resolution process of the corporate debtor.

Section 12A - Withdrawal of application admitted under section 7, 9 or 10.

 Withdrawal of application, admitted under section 7, 9 or 10, may be allowed by the
Adjudicating Authority on an application made by the applicant; with the approval of
90% voting share of the committee of creditors

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Section 13 – Declaration of moratorium and public announcement.

 Adjudicating Authority, after admission of the application under section 7 or section

9 or section 10, 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.
The public announcement shall be made immediately after the appointment of the interim
resolution professional

Section 14 - Moratorium

 Moratorium means a delay or suspension of an activity or a law

 A legal authorization to the debtors to delay/postpone payment due.
 On the insolvency commencement date, the Adjudicating Authority shall by order
declare moratorium for prohibiting all of the following, namely: -
 the institution of suits or continuation of pending suits or proceedings against
the corporate debtor including execution of any judgment, decree or order in
any court of law, tribunal, arbitration panel or other authority;
 transferring, encumbering, alienating or disposing of by the corporate debtor
any of its assets or any legal right or beneficial interest ther ein;
 any action to foreclose, recover or enforce any security interest created by
the corporate debtor in respect of its property including any action under the
Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002; (d) the recovery of any property by an owner or
lessor where such property is occupied by or in the possession of the
corporate debtor.
 During the moratorium period, the supply of essential goods or services to the
corporate debtor as may be specified shall not be terminated or suspended or
interrupted.
 Where the interim resolution professional or resolution professional, as the
case may be, considers the supply of goods or services critical to protect
and preserve the value of the corporate debtor and manage the operations or
such corporate debtor as a going concern, then the supply of such goods or
services shall not be terminated, suspended or interrupted during the period
of moratorium, except where such corporate debtor has not paid dues arising
from such supply during the moratorium period or in such circumstances as
may be Specified.
 The order for moratorium shall not apply to:-

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 transactions, agreements or other arrangements as may be notified by the

Central Government in consultation with any financial sector regulator or any
other authority;
 a surety in a contract of guarantee to a corporate debtor.
 Moratorium duration- The order of moratorium shall have effect from the date of
such order till the completion of the corporate insolvency resolution process.
 If at any time during the corporate insolvency resolution process period, the
Adjudicating Authority approves the resolution plan or passes an order for
liquidation of corporate debtor, the moratorium shall cease to have effect
from the date of such approval or liquidation order, as the case may be.
Section 15 - Public announcement of corporate insolvency resolution process

 Adjudicating Authority, after admission of the application shall by an order cause

public announcement of the initiation of corporate insolvency resolution process and
call for the submission of claims.
 Public announcement to be made by the insolvency professional immediately on his
appointment as an interim resolution professional
 Contents of public announcement shall include: -
 name and address of the corporate debtor under the corporate insolvency
resolution process;
 name of the authority with which the corporate debtor is incorporated or
registered;
 the last date for submission of claims, as may be specified;
 details of the interim resolution professional who shall be vested with the
management of the corporate debtor and be responsible for receiving claims;
 penalties for false or misleading claims; and
 the date on which the corporate insolvency resolution process shall close,
which shall be the one hundred and eightieth day from the date of the
admission of the application under sections 7, 9 or section 10, as the case
may be.

Section 16 - Appointment and tenure of interim resolution professional

 On the insolvency commencement date, the Adjudicating Authority shall appoint an

interim resolution professional.
 Resolution professional to be appointed, as proposed, by the financial creditor or the
corporate debtor as the interim resolution professional, if no disciplinary
proceedings are pending against him.
 Where the application for corporate insolvency resolution process is made by an
operational creditor and: -
 no proposal for an interim resolution professional is made, the Adjudicating
Authority shall make a reference to the Board for the recommendation of an
insolvency professional who may act as an interim resolution professional;

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 if a proposal for an interim resolution professional is made under section

9(4), the resolution professional as proposed, shall be appointed as the
interim resolution professional, if no disciplinary proceedings are pending
against him.
 The Board shall, within 10 days of the receipt of a reference from the Adjudicating
Authority, recommend the name of insolvency professional.
 The term of the interim resolution professional shall continue till the date of
appointment of the resolution professional under section 22.

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