by Akshay Goel
The laws of insolvency and resultant corporate liquidation are currently spread across various statutes, including the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Companies Act, 2013. However,with the number of cases of fraudulent activities by corporate persons increasing, the Parliament realised the need to consolidate all the laws relating to the insolvency in the country and give it a new shape so as to prevent such activities and penalise the culprits. In pursuance of this, the current Finance Minister of India, Mr. Arun Jaitley, proposed a new legislation called Insolvency and Bankruptcy Bill, 2015 (hereinafter, the Bill).
This Bill, once cleared, will repeal the Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920 and amend many provisions of Companies Act, 2013, Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and Sick Industrial Companies (Special Provisions) Repeal Act, 2003 and many more.
Insolvency Resolution Process
One of the major changes this Bill seeks to bring about in the process of corporate liquidation is introduction of the concept of insolvency resolution process (hereinafter, IRP). This is a process under which the corporate debtor and the creditors would try to negotiate on and draft a repayment plan. In the event that they are able to reach a suitable negotiable plan which receives the prescribed assent of the creditors as well as the corporate debtor, the company can be protected from liquidation. It would be relevant at this juncture to read into the process of Insolvency Resolution elaborately.
When a corporate debtor defaults in his payments, the process of Insolvency Resolution can be initiated by an operational creditor, or the debtor himself.
IRP Initiated by Operational Creditor
In order to initiate the process of Insolvency Resolution, the Act prescribes that an operational creditor needs to provide the defaulter debtor a notice in the form of a demand notice of unpaid debt or a copy of an invoice demanding payment of such amount.
Within ten days from the receipt of this notice, the corporate debtor can escape IRP by replying to the creditor with one of the following:
- Proof of pendency of a suit or arbitration proceeding before receipt of the aforementioned notice.
- Repayment by way of either a record of electronic transfer of the pending amount or record of encashment of cheque by the creditor.
Only in case the creditor doesn’t receive a prescribed reply from the corporate debtor within ten days of delivery of such notice can the creditor file an application for initiating the Insolvency Resolution Process. In this case, along with the other prescribed information proposed in the Bill, the creditor also has the power to suggest an interim resolution professional to carry out the proceedings.
The proposed Adjudicating Authority under the Bill carries the ultimate power to admit or reject such application of the creditor. The situations where this Authority can reject the application of the creditor are:
- The application is incomplete.
- There has been repayment of the unpaid operational debt.
- The creditor has not delivered the invoice or notice for payment to the corporate debtor.
- Notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility.
- Any disciplinary proceeding is pending against any proposed resolution professional.
IRP Initiated by Corporate Debtor
The proposed Bill also gives the Corporate Debtor the power of initiating the IRP upon himself. The formalities prescribed under this Bill are, for obvious reasons, much lesser in this case.
All a corporate applicant in this case needs to do is provide the Adjudicating Authority with his books of accounts and a name for the post of interim resolution professional. And if the application is complete as prescribed under the proposed Bill, the Adjudicating Authority commences the process of Insolvency Resolution.
General Rules for IRP
Apart from specific procedure applicable as per the applicant in each case, the proposed Bill prescribes certain general rules regarding the process of Insolvency Resolution:
- The following persons are not eligible to file for IRP:
(a) a corporate debtor undergoing a corporate insolvency resolution process; or Initiation of corporate insolvency resolution process by corporate applicant.
(b) a corporate debtor having completed corporate insolvency resolution process twelve months preceding the date of making of the application; or
(c) 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
(d) a corporate debtor in respect of whom a liquidation order has been made.
- The prescribed time period for completion of IRP is 180 days. In certain cases, with the permission of the Adjudicating Authority, the same can be extended, but not beyond 90 days after the original 180. If, even within such time a suitable resolution is not reached upon by the debtor and the creditors, the company would be liable for liquidation.
- A public announcement of the initiation of IRP and call for claims shall be made by the Adjudicating Authority under the Act.
The changes proposed by this Bill are way beyond just the introduction of Insolvency Resolution Process. It amends about 11 different statutes, in order to omit the sections that would be rendered useless when the said Bill is enacted by the parliament. An example of this would be the proposed change brought about by the Bill in the process of voluntary winding up of a company. Presently, this is governed by Section 304 of the Companies Act, 2013. However, this Bill seeks to govern the same by Section 59 of the Proposed Bill.
A prima facie reading of the Bill makes it clear how, if and when the same is enacted, it has the potential of rectifying a lot of procedural flaws that exist in the present provisions, and hence, regulating the process of corporate liquidation in a far better manner as compared to the present statutes.
Akshay Goel is a third year student at HNLU
 Arun Jaitley, Statement of objects and reasons, Insolvency and Bankruptcy Code, 2015.
 http://www.prsindia.org/billtrack/the-insolvency-and-bankruptcy-bill-2015-4100/ (last accessed: 28.1.16)
 Section 6, Insolvency and Bankruptcy Bill, 2015.
 Section 8, Insolvency and Bankruptcy Bill, 2015.
 Section 8(2), Insolvency and Bankruptcy Bill, 2015.
 Section 9, Insolvency and Bankruptcy Bill, 2015.
 Section 9(4), Insolvency and Bankruptcy Bill, 2015.
 Section 9(5)(ii), Insolvency and Bankruptcy Bill, 2015.
 Section 10, Insolvency and Bankruptcy Bill, 2015.
 Section 10(4), Insolvency and Bankruptcy Bill, 2015.
Section 10(5), Insolvency and Bankruptcy Bill, 2015.
 Section 11, Insolvency and Bankruptcy Bill, 2015.
 Section 12, Insolvency and Bankruptcy Bill, 2015.
 Section 33(1), Insolvency and Bankruptcy Bill, 2015.
 Section 15, Insolvency and Bankruptcy Bill, 2015.
 This provisions provides for two conditions in which a company can be allowed to wind up voluntarily wiz. With a resolution in the General Meeting due to provisions of the Articles OR with a special resolution by the company.
 Under this provision, the procedural requirements for voluntary winding up have been increased. Now, the Authority under the Act is supposed to ensure that the said company is capable of paying off all its debts and is not taking this step just to defraud a creditor or escape from a liability.