Conceptual Clarity: Insolvency and Bankruptcy Code, 2016 (IBC)

Insolvency is a financial state where an individual or organization cannot meet its debt
obligations as and when they become due. It is a situation of default in payment, which, if left
untreated, can lead to bankruptcy for individuals or liquidation for corporates1.

Bankruptcy is a legal declaration of one’s inability to pay off debts. For individuals, bankruptcy
is the legal process that follows insolvency, where assets are evaluated and may be liquidated
to repay creditors1.

Liquidation refers to the winding up of a company, where its assets are sold off to pay
creditors. This is the final step for corporates if insolvency resolution fails1.

Relationship: Insolvency, Bankruptcy, and Liquidation

Term Applies to Meaning Outcome/Process

Triggered

Insolvency Individuals, Firms, Inability to pay debts as they become May lead to
Corporates due bankruptcy/liquidation

Bankruptcy Individuals, Firms Legal process after insolvency, assets Discharge from remaining
liquidated to pay creditors debts

Liquidation Corporates Winding up of company, assets sold to Company ceases to exist

pay creditors

• Insolvency is a state.

• Bankruptcy is a legal conclusion for individuals.

• Liquidation is the process for corporates when resolution fails1.

Objectives of IBC

• Consolidate and amend laws relating to insolvency and bankruptcy.

• Resolve insolvency in a time-bound manner.

• Maximize value of assets.

• Promote entrepreneurship and availability of credit.

• Balance interests of all stakeholders.

• Establish the Insolvency and Bankruptcy Board of India (IBBI)1.

Institutional Framework (Four Pillars)

• Adjudicating Authority: NCLT (corporates), DRT (individuals/firms)

• Regulator: Insolvency and Bankruptcy Board of India (IBBI)

• Insolvency Professionals: Manage the process

• Information Utilities: Store financial information electronically1

Applicability & Process

• CIRP Initiation: By debtor, financial creditor, or operational creditor.

• Default Threshold: ₹1 crore (since March 2020).

• Moratorium: Stay on suits/proceedings for 180 days (extendable up to 90 days).

• Completion Timeline: Mandatorily within 330 days (including extensions and

litigation)1.

Key Terms

• Financial Failure: Cash flow mismatch despite a viable business model.

• Business Failure: Breakdown of business model, insufficient revenue.

• Avoidance Transactions: Preferential, undervalued, defrauding creditors, extortionate

credit (Sections 43–51).

• Moratorium: Legal stay on proceedings against the debtor during CIRP.

Exam-Oriented MCQs (with Answers)

1. What is the minimum default amount to initiate CIRP under IBC (as of March 2020)?
A) ₹1 lakh
B) ₹10 lakh
C) ₹50 lakh
D) ₹1 crore
Answer: D) ₹1 crore1

2. Which authority acts as the Adjudicating Authority for corporate insolvency?

A) Debt Recovery Tribunal
B) National Company Law Tribunal
C) High Court
D) Supreme Court
Answer: B) National Company Law Tribunal (NCLT)1

3. What is the maximum period for completion of CIRP, including extensions and
litigation?
A) 180 days
B) 270 days
C) 330 days
D) 365 days
Answer: C) 330 days1

4. Which of the following is NOT an objective of the IBC?

A) Maximization of asset value
B) Recovery mechanism for creditors
C) Promotion of entrepreneurship
D) Availability of credit
Answer: B) Recovery mechanism for creditors1
5. Who regulates Insolvency Professionals under IBC?
A) Reserve Bank of India
B) Ministry of Corporate Affairs
C) Insolvency and Bankruptcy Board of India
D) Securities and Exchange Board of India
Answer: C) Insolvency and Bankruptcy Board of India (IBBI)1

Comparative Table: Insolvency vs. Bankruptcy vs. Liquidation

Feature Insolvency Bankruptcy Liquidation

Applicability Individuals & Corporates Individuals & Firms Corporates

Nature Financial state Legal process Process of winding up

Trigger Default in payment Untreated insolvency Failed resolution/untreated

insolvency

Outcome May be resolved or lead to Discharge from remaining Company ceases to exist
next debts

Authority NCLT/DRT DRT/NCLT NCLT

Quick Reference Chart: IBC Process Flow

Step Description

Default Occurs Debtor fails to pay debt

Application Filed By creditor or debtor to NCLT/DRT

Admission & Moratorium NCLT/DRT admits case, imposes moratorium

CIRP Initiated Insolvency Professional takes charge, manages process

Committee of Creditors Formed to evaluate and approve resolution plan

Resolution or Liquidation If plan approved, company revived; if not, liquidation process starts

This summary provides conceptual clarity, exam-focused MCQs, and comparative tables for
quick revision on the Insolvency and Bankruptcy Code, 201

1.CASE LAW
In the case Company Appeal (AT) (Insolvency) No. 540 of 2020, dated 17th January 2022, the
NCLAT (National Company Law Appellate Tribunal) dealt with a matter involving M/s Amsons
Communication Pvt. Ltd. and M/s ATS Estates Pvt. Ltd..

The NCLAT ruled that the provisions of the Insolvency and Bankruptcy Code (IBC) cannot be
used as a tool for recovering interest claims by an Operational Creditor. This means that the
IBC is not meant to be used for merely recovering the interest on dues but should be used for
resolving the corporate insolvency of a company facing financial distress.
In simpler terms:

• The Insolvency Code (IBC) is not a recovery mechanism for claims such as interest.

• An Operational Creditor cannot use the insolvency process solely to recover interest
on outstanding payments.

• The focus of IBC is on resolving insolvency and corporate restructuring, not just
collecting interest or debt recovery.

This decision highlights the distinction between using the insolvency process for genuine
corporate resolution versus using it for debt collection purposes.

2. Summary of the Supreme Court Judgment in Surendra Trading Company Vs. Juggilal
Kamlapat Jute Mills Company Ltd.

In this case, the Supreme Court clarified the time limits for the Corporate Insolvency
Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC), 2016 and
explained that certain time limits are directory (flexible), not mandatory. This decision
provides clarity on the procedural aspects of CIRP.

Here’s a simple and attractive breakdown of the three stages of CIRP and the timelines:

Three Stages of CIRP:

1. First Stage – Filing the Application:

o When the application is filed with the Adjudicating Authority, the registry
checks if it’s complete or has any defects.

o If complete, the Adjudicating Authority will schedule a preliminary hearing.

o If there are defects, the applicant has 7 days to fix them. This is directory,
meaning it's not a strict deadline but a helpful guideline to speed up the
process.

2. Second Stage – Decision to Admit or Reject the Application:

o The Adjudicating Authority has 14 days to decide whether to admit or reject the
application.

o If the application is rejected, the process ends there. If admitted, the CIRP
begins, marking the third stage.

3. Third Stage – After Admission (Resolution Process):

o Once the application is admitted, the insolvency resolution process begins.

o This must be completed within 180 days, with an extension of up to 90 days in

certain cases.

o The focus here is on resolving the company’s insolvency, not on the procedural
delays.

Key Takeaways:
 • The time periods mentioned (like 7 days to remove defects or 14 days to admit/reject)
are directory, meaning they guide the process but are not strict deadlines.

• These time limits are designed to speed up justice, not to invalidate the process if
missed by a day or two.

• The 7-day period for fixing defects before the application is even considered, as well as
the 14-day period for deciding on the application’s admission, are not mandatory but
meant to aid in the efficient functioning of the IBC.

In Simple Terms:

• The IBC process has a flexible timeline to help speed up the insolvency resolution but
doesn’t penalize small delays in the early stages.

• Timely action is encouraged, but missing a deadline doesn't automatically block the
whole process.

This judgment emphasizes that while the IBC aims for speed, it also allows for practical
flexibility to ensure the process works smoothly without harsh penalties for minor delays.

Case Laws Overview:

1. Bank of India v. Future Retail Ltd. (2022) - NCLT Mumbai Bench:

o Issue: A financial creditor provided credit facilities to a corporate debtor, which

was later restructured under a framework agreement. The corporate debtor
defaulted in repayment, and despite entering into a one-time restructuring
(OTR) under the RBI Circular, the debtor again defaulted.

o Decision: The NCLT admitted the petition filed by the financial creditor under
Section 7 of the IBC, as the corporate debtor admitted its default and
acknowledged the outstanding amount.

o Withdrawal of CIRP:

▪ Before CoC Constitution: Application for withdrawal must be made

through the interim resolution professional (IRP).

▪ After CoC Constitution but Before EoI: CoC must consider the
application for withdrawal within 7 days, and it needs a 90% vote to
approve it.

▪ After Issue of EoI: Same procedure applies, but the applicant must
justify the reasons for withdrawal.

Key Takeaway: The corporate debtor's acknowledgment of default and outstanding amounts
was sufficient to prove debt and default, leading to the admission of the CIRP.

2. Siti Networks Ltd. v. Assets Care and Reconstruction Enterprises Ltd. (2022) -
NCLAT New Delhi:
 o Issue: The financial creditor assigned the debt to an assignee. The assignee
sought substitution as the financial creditor in place of the original creditor, and
the NCLT permitted the assignee to continue the proceedings.

o Decision: Section 5(7) of the IBC allows a person to whom the debt has been
assigned to step into the shoes of the original financial creditor. Thus, the
assignee became the financial creditor and had the right to continue the CIRP
proceedings initiated by the original creditor.

o Key Takeaway: An assignee of a debt has the legal right to pursue the CIRP
proceedings, as they are considered the financial creditor under IBC.

3. Manish Kumar v. Union of India (2021) - SC:

o Issue: The Supreme Court dealt with the minimum threshold requirement for
initiating CIRP by financial creditors (class action) against real estate
developers under Section 7 of IBC (Amendment) Act, 2020. It requires that
either 100 allottees or 1/10th of allottees can file an application if they can
prove default.

o Decision: The Supreme Court upheld the constitutional validity of this

provision. It stated that a default can be established for any of the applicants,
and even non-applicants are bound by the proceedings as the action is in rem,
affecting all stakeholders, including allottees.

o Key Takeaway: The minimum threshold for initiating CIRP by a class of

creditors (such as real estate project allottees) is constitutional. Default can be
shown by any of the applicants, not necessarily the one filing the petition.

Summary:

1. Bank of India v. Future Retail Ltd.: CIRP was admitted due to the corporate debtor's
repeated defaults. Withdrawal of CIRP follows a specific procedure, and the timelines
depend on the stage of the process.

2. Siti Networks v. Assets Care and Reconstruction: Assignees of debts have the right
to continue CIRP proceedings, as they legally step into the shoes of the original
financial creditor.

3. Manish Kumar v. Union of India: The minimum threshold for initiating CIRP by
financial creditors (like real estate allottees) was upheld as constitutional, allowing
creditors to file a petition if a default is proven.

Case Laws Overview:

1. Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd. (SC) - Civil Appeal No.
9405 of 2017 (21st Sept 2017):
 o Issue: In the case of a Section 9 application (filed by an operational creditor),
the question arose whether a dispute should prevent admission of the petition.

o Decision: The Supreme Court held that if a genuine dispute exists regarding
the debt, the petition cannot be admitted. The dispute should not be based on
feeble legal arguments or unsupported facts. It must not be frivolous,
vexatious, or without merit.

o Key Takeaway: A dispute over the debt should be substantial, and not just a
weak argument or bluff, in order to avoid the initiation of CIRP.

2. Fipola Retail (India) Pvt. Ltd. v. M2N Interiors (NCLAT Chennai, 2021):

o Issue: An application under Section 9 was filed by an operational creditor

against a proprietary concern (individual business). The corporate debtor
claimed that the application could not be maintained because the application
was filed in the name of a proprietorship, not a person.

o Decision: The NCLAT Chennai held that the application was maintainable, as
the IBC applies to proprietorship firms and partnerships as well, under
Section 2(f) of the IBC.

o Key Takeaway: The IBC can be used to initiate CIRP against proprietorship or
partnership firms, as they are recognized under the Code.

3. Ashok G. Rajani v. Beacon Trusteeship Ltd. (SC):

o Issue: The issue was about the withdrawal of an application admitted under
Section 7, Section 9, or Section 10 of the IBC. The question was whether an
application can be withdrawn before the Committee of Creditors (CoC) is
formed.

o Decision: The Supreme Court clarified that Section 12A allows the withdrawal
of an application with the approval of 90% of the CoC votes. However, the CoC
can only approve the withdrawal after it has been formed. Before the CoC is
constituted, there is no bar to withdrawing the application admitted under
Section 7.

o Key Takeaway: Applications under Section 7, 9, or 10 can be withdrawn

before the CoC is constituted, but after the CoC is formed, 90% approval is
required for withdrawal.

Summary:

1. Mobilox Innovations Pvt. Ltd.: A genuine dispute must exist to prevent the admission
of a Section 9 application; weak or unsupported disputes won’t suffice.

2. Fipola Retail v. M2N Interiors: CIRP can be initiated against proprietorships and
partnership firms, as the IBC applies to them too.
 3. Ashok G. Rajani v. Beacon Trusteeship Ltd.: Applications under Sections 7, 9, and
10 can be withdrawn before CoC formation, but 90% approval from the CoC is
required after formation.

These cases clarify important aspects of CIRP initiation, dispute resolution, and the
withdrawal of applications under the Insolvency and Bankruptcy Code (IBC), highlighting
procedural rights and limitations for creditors and debtors.

CHAT GPT

Realistic Example of Financial Debtor & Financial Creditor

Scenario: A Company Takes a Loan

Tata Motors Ltd.

• Needs ₹100 crores to expand its manufacturing plant.

• So, it takes a loan from HDFC Bank at 9% interest for 5 years.

Who's Who?

Role Who? Why?

Financial Tata Motors Because it has borrowed money (loan) and has to
Debtor Ltd. repay.

Financial HDFC Bank Because it gave the money and expects repayment
Creditor with interest.

Key Concept:

Whenever money is borrowed with the intention to repay (with interest),

the borrower becomes the Financial Debtor, and
the lender becomes the Financial Creditor.

Memory Trick (Mini Movie Style):

"Tata Motors (the borrower) walks into HDFC Bank (the lender) and says:
'I need ₹100 crore now, and I’ll repay with interest.'
 HDFC Bank hands over the money
Tata Motors signs the loan papers

And just like that — a Financial Creditor and Financial Debtor are born!
FINANCIAL
CREDITOR

FINANCIAL
DEBTOR
GIVE 100 CR TO TATA AS A LOAN

TATA
MOTERS

This Photo by Unknown

Pages 1 to 10 – Introduction to the Insolvency and Bankruptcy Code (IBC), 2016)

1. Concept Explanation

Key Concepts Covered:

• Insolvency vs. Bankruptcy:

o Insolvency is a financial state (inability to pay debts).

o Bankruptcy is a legal process that follows unresolved insolvency.

• Liquidation: Applies to corporates; assets are sold off to pay creditors.

• Objectives of IBC:

o Resolve insolvency efficiently.

o Maximise value of assets.

o Promote entrepreneurship.

o Establish credit availability.

• IBC Structure:

o 5 Parts, 255 Sections, 12 Schedules.

 • Applicability: Covers companies, LLPs, personal guarantors, individuals, etc.

• Four Pillars:

1. Adjudicating Authority (NCLT/DRT)

2. Insolvency and Bankruptcy Board of India (IBBI)

3. Insolvency Professionals (IPs)

4. Information Utilities (IUs)

2. Short Summary (Emoji-rich, Exam-Ready)

Topic Summary

Insolvency vs. Insolvency = inability to pay debts ; Bankruptcy = legal

Bankruptcy declaration

Liquidation Corporate winding up – assets sold to repay debts

Objectives Faster resolution , asset value maximization , promote

entrepreneurship

Structure 5 Parts , 255 Sections , 12 Schedules

Applicability Covers companies , LLPs , individuals , personal

guarantors

Four Pillars of IBC NCLT/DRT , IBBI , IPs , IUs

4. Exam-Oriented MCQs (with Explanation)

1. Which of the following is a legal process?

a) Insolvency
b) Liquidation
c) Bankruptcy
d) Business failure

Explanation: Bankruptcy is a court-driven legal process that follows unresolved insolvency.

2. Who is the regulator under the IBC?

a) SEBI
b) RBI
c) IBBI
d) NCLT

Explanation: IBBI (Insolvency and Bankruptcy Board of India) is the regulator.

3. Which section defines "default" under the IBC?

a) Section 2
 b) Section 3(12)
c) Section 10
d) Section 4

Explanation: Section 3(12) defines default as non-payment when due.

4. Which of the following is NOT a pillar of the IBC framework?

a) Adjudicating Authority
b) Credit Rating Agency
c) Insolvency Professionals
d) Information Utilities

Explanation: Credit Rating Agencies are not part of the IBC framework.

5. Which type of default threshold was increased to ₹1 crore in March 2020?

a) Personal default
b) Operational creditor default
c) Corporate debtor default
d) Government dues

Explanation: To avoid misuse by small creditors, threshold for initiating CIRP was raised to
₹1 crore.

Pages 11–20: Scope, Applicability, and Key Definitions in IBC

1. Concept Explanation

Applicability of the Code [Section 2]

IBC applies to:

• Companies under Companies Act, 2013

• LLPs under LLP Act

• Personal guarantors to corporate debtors

• Proprietorships & partnership firms

• Individuals (phased manner)

• Notified bodies

Non-Applicability

• IBC is not applicable to financial service providers like banks, NBFCs (unless
specifically notified under Section 227).

Important Case Law:

Lalit Kumar Jain v. Union of India (2021)
Personal guarantors of corporate debtors form a distinct class and must be adjudicated by
NCLT.

2. Short Summary Table

Area Summary

🏛 Applicability Companies, LLPs, partnership/proprietorship firms, individuals,

personal guarantors

Non-Applicability Financial service providers excluded, unless notified by Central Govt.

Key Case Law Lalit Kumar Jain v. Union of India – NCLT can adjudicate personal
guarantor insolvency

IBC ≠ Recovery Sole purpose is resolution, not recovery

Law

Date of 28th May 2016; different provisions notified on different dates

Enforcement

4. Exam-Oriented MCQs (with Answers & Explanation)

1. IBC is applicable to which of the following?

a) Scheduled Banks
b) Financial Service Providers
c) Personal Guarantors to Corporate Debtors
d) All of the above

Explanation: Financial service providers are excluded unless notified. Personal guarantors
are covered from 2017.

2. Which section of the IBC defines its applicability?

a) Section 3
b) Section 5
c) Section 2
d) Section 60

Explanation: Section 2 specifically lays out to whom the Code applies.

3. What is the significance of Section 227?

a) It deals with resolution plan
b) It defines financial debt
c) It allows Govt. to notify financial entities under IBC
d) It is about liquidation process

Explanation: Section 227 empowers Govt. to include NBFCs, etc., in IBC under specific
notifications.
 4. Which judicial forum handles personal guarantors under IBC?
a) DRT
b) Civil Court
c) NCLT
d) SEBI

Explanation: As per SC judgment, NCLT is the adjudicating authority for personal guarantors
of corporate debtors.

5. IBC came into force on:

a) 1st April 2016
b) 23rd Nov 2017
c) 28th May 2016
d) 1st Jan 2017

Explanation: Code was enacted on 28 May 2016, although provisions notified in phases.

Pages 21–30: Structure of the Code & Important Definitions

1. Concept Explanation

Structure of IBC Code (Overview)

IBC is divided into 5 Parts covering 255 Sections and 12 Schedules:

• Part I: Preliminary (Sections 1–3)

• Part II: Corporate Insolvency & Liquidation (Sections 4–77)

• Part III: Insolvency Resolution & Bankruptcy for Individuals & Firms (Sections 78–187)

• Part IV: Regulation of IPs, IPAs & IUs (Sections 188–223)

• Part V: Miscellaneous (Sections 224–255)

Key Definitions from Sections 3 & 5

Term Explanation

Adjudicating Authority NCLT (corporates), DRT (individuals)

Board Insolvency and Bankruptcy Board of India (IBBI)

Corporate Debtor A corporate person who owes a debt

Creditor Financial/operational creditor or a secured/unsecured

creditor

Default Non-payment of debt when due

 Insolvency Commencement Date of admission of application under Sec 7, 9, or 10
Date

Liquidator Insolvency professional appointed for liquidation process

Personal Guarantor Individual who guarantees the debt of a corporate debtor

2. Short Summary

Topic Summary

Structure of IBC 5 Parts, 255 Sections, 12 Schedules

Definitions Sections 3 & 5 define key terms

Adjudication NCLT for corporates; DRT for individuals

Board IBBI established under Sec 188

Key Terms Default, Liquidation Date, Operational Creditor, Personal Guarantor

4. Exam-Oriented MCQs (with Answers & Explanations)

1. How many parts are there in the IBC Code, 2016?

a) 3
b) 4
c) 5
d) 6

Explanation: IBC is structured in 5 parts covering corporates, individuals, and regulatory

mechanisms.

2. Who acts as the adjudicating authority for individuals under IBC?

a) NCLT
b) DRT
c) Civil Court
d) High Court

Explanation: NCLT is for corporate entities; DRT handles individuals and partnership firms.

3. Who is appointed as a liquidator under IBC?

a) NCLT Judge
b) Insolvency Professional
c) Arbitrator
d) Company Auditor

Explanation: IPs are registered professionals under IBBI who act as liquidators.

4. Which Section defines 'default' in IBC?

a) Section 2
 b) Section 3(12)
c) Section 5(14)
d) Section 10

Explanation: Default is defined under Section 3(12) as non-payment when due.

5. The Insolvency and Bankruptcy Board of India (IBBI) is established under:

a) Section 188
b) Section 10
c) Section 30
d) Section 7

Explanation: Section 188 establishes the IBBI as the regulator under Part IV.

1. Board [IBBI]

• Meaning: It’s the regulatory body – Insolvency and Bankruptcy Board of India (IBBI).

• Example: Like SEBI regulates the stock market, IBBI regulates insolvency professionals,
information utilities, etc.

• Powers: It can issue summons, inspect documents, and act like a civil court.

2. Charge

• Meaning: A legal right or interest created on assets to secure a loan.

• Example: A bank gives a car loan and keeps a charge (lien) on the car until full payment.

3. Claim

• Meaning: Right to payment or remedy (even if disputed or not yet matured).

• Example: A supplier who hasn’t been paid can file a claim even if the invoice isn’t due
yet.

4. Corporate Person

• Includes: Companies, LLPs, or any entity with limited liability.

• Excludes: Banks and financial service providers.

• Example: Infosys (Company), ABC LLP.

5. Corporate Debtor
 • Meaning: A corporate person who owes a debt.

• Example: If XYZ Ltd. doesn’t pay its loan, it becomes a corporate debtor.

6. Creditor

• Meaning: A person or institution to whom money is owed.

• Includes: Financial, operational, secured/unsecured creditors, and decree holders.

• Example: A bank (financial creditor), or a vendor (operational creditor).

7. Debt

• Meaning: A liability or obligation from a claim.

• Types: Financial Debt and Operational Debt.

Financial Debt [Section 5(8)]

• Concept: Money borrowed with an expectation of repayment with interest.

• Examples:

o Bank loans (a)

o Bonds, debentures (c)

o Lease considered as finance lease (d)

o Forward contracts (f)

o Real estate advances from allottees (Explanation)

o Derivatives, guarantees (g, h, i)

➡️ Not Financial Debt: Share subscription money (as per case law).

Operational Debt [Section 5(21)]

• Concept: Related to supply of goods/services or statutory dues.

• Examples:

o Unpaid bill for raw materials.

o Unpaid PF or GST dues.

8. Default

• Meaning: Non-payment of a debt when due.

• Example: EMI not paid on due date = default.

9. Financial Service

• Meaning: Services like banking, insurance, investment advice, etc.

• Examples:

o Bank accepting deposits.

o Mutual fund offering schemes.

o Financial advisor selling insurance.

10. Financial Service Provider

• Meaning: A person/company providing financial services with regulatory approval.

• Examples: SBI, LIC, HDFC Mutual Fund.

11. Financial Sector Regulator

• Meaning: Government body regulating financial services.

• Examples:

o RBI – for banks

o SEBI – for stock market

o IRDAI – for insurance

o PFRDA – for pension funds

12. Insolvency Professional (IP)

• Meaning: A qualified individual who conducts insolvency processes.

• Example: Mr. A, a CA registered with an IPA, acts as Resolution Professional in a

company’s CIRP.

13. Insolvency Professional Agency (IPA)

• Meaning: A body that enrolls, regulates, and guides insolvency professionals.

• Example: ICSI Institute of Insolvency Professionals.

14. Information Utility (IU)

• Meaning: Registered body that electronically stores and verifies financial data.

• Example: NeSL – authenticates default information from banks.

 Summary Table – Definitions (Easy Format)

Term Meaning Example

Board (IBBI) Regulator for insolvency Like SEBI for stock market
professionals & agencies

Charge Legal right over asset for security Bank lien on vehicle

Claim Right to payment or remedy Supplier claims unpaid

dues

Corporate Person Companies, LLPs (excluding banks Infosys, XYZ LLP

etc.)

Corporate Debtor Corporate person who owes debt ABC Ltd. defaulting on loan

Creditor Person to whom money is owed Bank, vendor, decree

holder

Debt Obligation from claim Loan, unpaid invoice

Financial Debt Loan or obligation involving time Bank loan, debenture,

value of money lease

Operational Debt Related to goods/services or GST dues, unpaid raw

statutory dues material bill

Default Non-payment of due debt Missed EMI

Financial Service Banking, insurance, investment Mutual fund, insurance

services

Financial Service Authorized entity providing financial HDFC Bank, LIC

Provider services

Financial Sector Regulatory authority for financial RBI, SEBI, IRDAI

Regulator services

Insolvency Qualified person managing CA acting as Resolution

Professional insolvency resolution Professional

IPA Regulates insolvency professionals ICSI IPA

Information Utility Stores/verifies financial data for NeSL

insolvency process

Pages 31–40: Corporate Insolvency Resolution Process (CIRP) – Overview

 1. Concept Explanation

Key Sections: 4 to 32 – CIRP for Corporate Persons

What triggers CIRP?

CIRP is initiated when:

• A financial creditor, operational creditor, or the corporate debtor itself files an

application.

• There is a default ≥ ₹1 crore (raised from ₹1 lakh via 2020 notification).

Steps in CIRP:

Step Description

Initiation Application to NCLT under Sec 7 (Financial Creditor), 9

(Operational Creditor), or 10 (Corporate Applicant)

Admission NCLT admits the case and declares insolvency commencement

date

Moratorium (Sec 14) All legal proceedings, suits, recovery actions are stayed

IRP Appointment (Sec Interim Resolution Professional appointed

16)

Public Announcement Invites claims from creditors

(Sec 15)

Formation of CoC Committee of Creditors (CoC) formed and IRP may be confirmed
or replaced

RP Management Resolution Professional takes control and prepares Information

Memorandum

Resolution Plan (Sec Must be approved by CoC with ≥66% vote and then by NCLT
30)

Timeline 180 days → Extendable by 90 → Max 330 days (incl. litigation time)

Important: CIRP is not for recovery — it’s for resolution of distress.

2. Short Summary Table

Topic Summary

CIRP Trigger Application under Sec 7, 9, or 10 on default ≥ ₹1 crore

Moratorium Freezes legal & enforcement actions against the corporate debtor

IRP & RP IRP appointed → CoC forms → RP may be confirmed

 CoC Role Approves resolution plan (≥66% vote)

Timelines 180 days → extendable to 330 days

Resolution Plan Must provide fair treatment to operational and dissenting creditors

CORPORATE INSOLVENCY RESOLUTION PROCESS (CIRP)

│
├── INITIATION
│ ├── Sec 7: Financial Creditor
│ ├── Sec 9: Operational Creditor
│ └── Sec 10: Corporate Applicant
│
├── MORATORIUM (Sec 14)
│ ├── Stay on lawsuits, asset sales, recovery
│
├── APPOINTMENT
│ ├── IRP by NCLT (Sec 16)
│ ├── IRP → Resolution Professional (RP)
│
├── CLAIMS
│ ├── Public Announcement (Sec 15)
│ └── Creditors file claims
│
├── COMMITTEE OF CREDITORS (CoC)
│ ├── Formed by RP
│ └── Holds decision powers (66% voting share)
│
├── RESOLUTION PLAN (Sec 30-31)
│ ├── Must follow Sec 53 priority
│ └── Approved by CoC + NCLT
│
└── TIMELINE
├── 180 days → +90 days → Max 330 days

Pages 41–50: Avoidance Transactions & Liquidation Process

1. Concept Explanation
Avoidance Transactions – Chapter III of IBC
To protect the value of the debtor's estate from being drained by fraudulent or unfair means
before insolvency, the Code provides for reversal of certain transactions:
Type of Transaction Sections Description
 Preferential 43–44 Benefit to certain creditors before insolvency (e.g.,
repaying a friend)
Undervalued 45–48 Asset sold at less than fair value
Fraudulent / 49 Intention to defraud creditors
Defrauding
Extortionate Credit 50–51 Excessive interest/unfair terms
• IRP/RP/Liquidator must:
1. Form an opinion,
2. Determine the transaction,
3. File application with NCLT
Liquidation Process – Sections 33 to 54
When CIRP fails:
• NCLT orders liquidation under Section 33.
• Resolution Professional becomes the liquidator.
• Liquidator creates liquidation estate, collects and sells assets.
• Proceeds distributed as per Section 53 waterfall.
Waterfall Mechanism – Section 53:
Priority Stakeholder
1⃣ IRP & liquidation costs
2⃣ Secured creditors + workmen dues (up to 24 months)
3⃣ Other employees (up to 12 months)
4️⃣ Unsecured creditors
5⃣ Govt dues + any unpaid secured creditors
6⃣ Preference shareholders
7⃣ Equity shareholders or partners

2. Short Summary Table

Topic Summary
Avoidance Section 43–51 handle preferential, undervalued, extortionate &
Transactions fraudulent transactions
🏛 IRP Role Forms opinion, investigates, files to NCLT
Liquidation Trigger When resolution plan not approved or contravened
Liquidator Appointed from IPs; creates liquidation estate
Section 53 Priority order for distribution of proceeds

Which of the following is not part of avoidance transactions under IBC?

a) Preferential
b) Undervalued
c) Winding-up
d) Fraudulent
Explanation: Winding-up is not an avoidance transaction; it is a consequence.
What happens if the resolution plan is not approved by NCLT?
a) It is sent back to RP
b) The company is revived
c) Liquidation is ordered
d) CoC is dissolved
Explanation: As per Section 33, liquidation follows failure of CIRP.
What is the topmost priority in liquidation proceeds distribution?
a) Unsecured creditors
b) Employees
c) Government dues
d) IRP and liquidation costs
Explanation: Section 53 prioritizes IRP and liquidation expenses.
Under which section does the Liquidator get appointed?
a) Section 29
b) Section 33
c) Section 44
d) Section 12
Explanation: Section 33 mandates the initiation of liquidation and appointment of
liquidator.

Pages 51–60: Fast Track & Voluntary Liquidation + Pre-Packaged Insolvency (PPIRP)

1. Concept Explanation

Fast Track Corporate Insolvency Resolution Process (Fast Track CIRP)

Feature Details

Sections 55 to 58

Applicable Small companies, startups, and unlisted companies with total assets ≤ ₹1
to crore

Timeline 90 days (extendable by max 45 days with NCLT approval)

Objective Quicker resolution with minimal procedures

Voluntary Liquidation – Section 59

Condition Description
No default Only companies not in default can opt
Special Resolution Required by shareholders + creditors
Liquidator Insolvency professional is appointed
🏛 Authority NCLT oversees process
 Exit Route For solvent companies seeking structured closure

Pre-Packaged Insolvency Resolution Process (PPIRP)

Feature Description
Sections 54A to 54P
Eligible Only MSMEs (Micro, Small & Medium Enterprises)
Objective Preserve jobs, ensure continuity, less disruption
Key Terms "Base Resolution Plan" submitted by corporate debtor
Timeline 120 days (90 days to submit plan, 30 for approval)
Introduced By 2021 amendment (effective from April 4, 2021)

2. Short Summary Table

Topic Summary
Fast Track CIRP For small entities – 90-day timeline (extendable to 135 days)
Voluntary Liquidation For solvent companies with no default
PPIRP MSME-specific reform – faster, cost-effective resolution
Base Resolution Plan Submitted by debtor at the start of PPIRP
Approval CoC → NCLT approval process

IBC: FAST TRACK + VOLUNTARY LIQUIDATION + PPIRP

1. FAST TRACK CIRP (Sec 55–58)
│
├── Small Companies / Startups / Asset ≤ ₹1 Cr
├── 90 Days + 45 Days extension
└── Minimalistic Procedure

2. VOLUNTARY LIQUIDATION (Sec 59)

│
├── Only for solvent companies (no default)
├── Requires Shareholder + Creditor Approval
└── Overseen by NCLT

3. PPIRP (Sec 54A–54P)

│
├── Applicable only to MSMEs
├── Introduced via 2021 Amendment
├── Base Resolution Plan (Debtor-initiated)
└── 120-day timeline (90 + 30)
Exam-Oriented MCQs (with Answers & Explanations)
1. What is the maximum time limit for completing Fast Track CIRP?
a) 90 days
b) 120 days
c) 135 days
d) 150 days
Explanation: Fast track CIRP → 90 days + one-time 45-day extension = 135 days max.
 2. Under which section is voluntary liquidation of a solvent company permitted?
a) Section 54
b) Section 59
c) Section 33
d) Section 7
Explanation: Section 59 enables voluntary liquidation for companies with no default.
3. Who can initiate PPIRP under IBC?
a) Large corporates
b) Banks
c) MSMEs
d) NBFCs
Explanation: Only MSMEs are allowed to use pre-packaged insolvency under Section 54A.
4. What is the “Base Resolution Plan” in PPIRP?
a) Plan submitted by CoC
b) Plan filed by NCLT
c) Initial plan by debtor
d) Rejected plan
Explanation: Debtor submits the first/base plan to kickstart PPIRP proceedings.
5. What is the total time limit for PPIRP process completion?
a) 180 days
b) 90 days
c) 330 days
d) 120 days
Explanation: PPIRP must be completed within 120 days (90 + 30-day approval buffer).

Pages 61–70: Insolvency for Individuals & Partnership Firms + Appeals & Penalties

1. Concept Explanation
Insolvency Resolution for Individuals & Firms (Part III – Sec 78 to 187)
Key Element Description

Applies to Individuals, partnership firms (non-corporate)

Processes Fresh Start, Insolvency Resolution, Bankruptcy

Adjudicating DRT (Debt Recovery Tribunal)

Authority

Fresh Start Debt waiver for poor debtors with income < ₹60,000, assets <
₹20,000, debt ≤ ₹35,000

Bankruptcy Liquidation of assets for repayment, ends with discharge order

Process

Appeals Under the Code

Forum Scope
 NCLT Adjudicating authority for corporate debtors

NCLAT Appeals from NCLT (Sec 61)

Supreme Court Appeals from NCLAT (Sec 62)

🏛 DRT Individual/firm insolvency

DRAT Appeals from DRT orders

Offences and Penalties (Sec 68–77, 184–187)

Section Offence Penalty
68 Concealment of property Imprisonment up to 5 years + fine
70 Misconduct by officers Up to 5 years imprisonment
72 False representations Fine up to ₹1 crore
184 Contravention by individual debtor Imprisonment up to 6 months

2. Short Summary Table

Topic Summary

Individual Insolvency Handled via Fresh Start, Resolution or Bankruptcy

Authority DRT for individuals, NCLT for corporates

Appeals NCLAT → SC for corporate cases; DRAT for individuals

Penalties Vary from imprisonment to fines up to ₹1 crore

Objective Deterrence + orderly resolution system for individuals/firms

Exam-Oriented MCQs (with Answers & Explanations)

1. What is the adjudicating authority for individuals under IBC?
a) NCLT
b) DRT
c) DRAT
d) SEBI
Explanation: Section 179 of the Code states DRT is the authority for individuals & firms.
2. Which process applies when a debtor has very low income and assets?
a) CIRP
b) Voluntary Liquidation
c) Fresh Start
d) PPIRP
Explanation: Fresh Start is a debt waiver for financially distressed individuals.
3. Appeal from NCLAT goes to which forum?
a) DRAT
b) High Court
 c) Supreme Court
d) RBI
Explanation: Appeals on questions of law from NCLAT go to the Supreme Court under
Section 62.
4. What is the penalty under Section 68 for concealing property?
a) ₹10,000
b) ₹5 lakh
c) Imprisonment up to 5 years + Fine up to ₹1 crore
d) Disqualification
Explanation: Heavy penalty imposed to discourage fraudulent concealment.
5. What is the appeal period from DRT to DRAT?
a) 45 days
b) 30 days
c) 60 days
d) 15 days
Explanation: Appeals from DRT to DRAT must be filed within 30 days.

MCQs:
1. What is the primary goal of the Insolvency and Bankruptcy Code (IBC)?
o A) To liquidate businesses
o B) To resolve insolvency and promote revival
o C) To avoid debt recovery
o D) To eliminate creditor rights
Answer: B) To resolve insolvency and promote revival
2. Which amendment focused on limiting the resolution period to 330 days?
o A) 2016 Amendment
o B) 2018 Amendment
o C) 2019 Amendment
o D) 2020 Amendment
Answer: B) 2018 Amendment
3. Who is considered a financial creditor under the IBC?
o A) Any person with a financial claim against the debtor
o B) A person who provides services to the debtor
o C) A person who buys goods from the debtor
o D) None of the above
Answer: A) Any person with a financial claim against the debtor
4. What is the key responsibility of the Resolution Professional in the insolvency
process?
o A) To act as a mediator between the debtor and creditor
o B) To liquidate the debtor’s assets
o C) To manage the debtor’s business during the insolvency resolution process
o D) To protect the debtor from creditors
Answer: C) To manage the debtor’s business during the insolvency resolution process
Case Scenario: The Insolvency of "ABC Textiles Pvt. Ltd." under the IBC

1. Introduction to the Case:

Company: ABC Textiles Pvt. Ltd.
Industry: Textile Manufacturing
Debts: ₹120 crores (Loans from multiple financial institutions, and unpaid dues to operational
creditors)
Date of Insolvency Filing: 1st March 2024
Resolution Professional (RP): Mr. Rahul Gupta (appointed as the RP)
Background:
ABC Textiles Pvt. Ltd. is a well-established textile manufacturer that has been facing financial
difficulties due to a decline in the textile market and poor demand for its products. The
company has a large debt exposure to various financial creditors, including banks and financial
institutions. It also has dues pending to its suppliers (operational creditors). After exhausting its
options to resolve the issue internally, the company’s board decided to file for insolvency under
the Insolvency and Bankruptcy Code, 2016 (IBC).

2. Initiation of Insolvency Process (IBC Code Section 7)

• IBC Code Section 7 empowers Financial Creditors (like banks) to initiate the
Corporate Insolvency Resolution Process (CIRP).
Action:
• State Bank of India (SBI), as one of the financial creditors holding a significant portion
of the debt, files an application for Corporate Insolvency Resolution Process (CIRP)
under Section 7 of the IBC in the National Company Law Tribunal (NCLT).
IBC Code Reference:
• Section 7 of IBC: Application by Financial Creditors
• Section 7(1): A financial creditor can file an application for initiation of CIRP if there is a
default in repayment.
Outcome:
The NCLT admits the application and appoints Mr. Rahul Gupta as the Resolution
Professional (RP), initiating the CIRP process.

3. Appointment of the Resolution Professional (RP) and Interim Moratorium (IBC Code
Section 14)
Once the CIRP is admitted by the NCLT:
• Section 14 of IBC: Moratorium Period
A moratorium period of 180 days is automatically imposed, during which all legal
proceedings (including recovery actions) against the company are suspended. This
provides a breathing space for the company to prepare for resolution.
• RP’s Role:
o Mr. Rahul Gupta, the appointed RP, takes over the management of ABC Textiles
Pvt. Ltd.
o The RP conducts an inventory of the company's assets and liabilities, including
all financial creditors (banks, financial institutions) and operational creditors
(suppliers).

4. Public Announcement and Formation of Committee of Creditors (CoC) (IBC Code

Section 21)
• IBC Code Section 21: Committee of Creditors (CoC)
After the moratorium, the RP issues a public announcement inviting claims from
creditors and identifying the Committee of Creditors (CoC).
CoC Composition:
• The CoC consists of Financial Creditors who hold more than 75% of the financial debt.
• The CoC meets to discuss the resolution options for ABC Textiles Pvt. Ltd., considering
a possible debt restructuring or sale of assets.

5. Resolution Plan and Decision (IBC Code Section 30)

• After receiving proposals from various potential investors, the RP presents a Resolution
Plan that aims to either restructure the company’s debts or sell the assets.
Resolution Plan Proposal:
• Debt Restructuring: One proposal suggests a 50% reduction in debt with an extension
of the repayment period.
 • Asset Sale: Another proposal involves selling the company’s factory and land to raise
funds for creditors.
IBC Code Reference:
• Section 30 of IBC: The RP reviews the Resolution Plan, and the CoC approves or
rejects it.
• The CoC approves the debt restructuring plan by a majority vote (75% of financial
creditors).

6. Approval by NCLT and Implementation (IBC Code Section 31)

• After the CoC approves the Resolution Plan, it is submitted to the NCLT for final
approval.
IBC Code Reference:
• Section 31 of IBC: Approval of Resolution Plan
The NCLT examines the resolution plan to ensure it is in compliance with the IBC and
provides a fair deal for all stakeholders.
Outcome:
• NCLT approves the Resolution Plan for ABC Textiles Pvt. Ltd. with the revised debt
structure and timeline.
• The RP then oversees the implementation of the plan, including rescheduling debt
repayments and operational changes as per the approved plan.

7. Completion of CIRP and Final Outcome (IBC Code Section 33 & 34)
If the resolution is successfully implemented:
• IBC Code Section 33: Liquidation
If the plan had not been approved, liquidation proceedings would have been initiated.
Outcome:
• Since the resolution plan was successful, ABC Textiles Pvt. Ltd. avoids liquidation and
continues operations under the new debt structure.
• The company’s management is restored to the original owners after compliance with
the resolution plan.

Summary of Key Sections Involved:

1. Section 7: Application for initiation by financial creditors.
2. Section 14: Moratorium period.
3. Section 21: Committee of Creditors.
4. Section 30: Resolution Plan.
5. Section 31: Approval by NCLT.
6. Section 33: Liquidation.
7. Section 34: Implementation of Resolution Plan.