Introduction To IBC, 2016

When a business or individual cannot meet debt obligations with lenders, this is termed as insolvency or the state where the liabilities of an individual or company are more than that of its assets or in simple words The state of being insolvent is insolvency.

Bankruptcy is the state of being bankrupt, when a person is not having enough money to pay his debts that person is known as bankrupt.

When insolvency is left untreated it may leads to either liquidation in case of corporate or in bankruptcy in case of non-corporate.
The insolvency and bankruptcy code came into force on 28 may 2016 which was act no. 31 of 2016 with object to regulate the insolvency and bankruptcy cases throughout the territory of India.

The code consists of 5 parts 225 sections and 7 chapters dealing with several aspects of insolvency and bankruptcy

Parties:
Following are the parties who may initiate CIRP as per section 6 in insolvency and bankruptcy code:

• Corporate debtor:
  Person who owes the debt to another [section 3(8) , IBC 2016]
• Financial creditor:
  Any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to . [section 5 (7) ,IBC 2016
• Operational creditor:
  A person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred [section 5(20), IBC 2016]

CIRP Meaning

CIRP stands for corporate insolvency resolution process .when a default of minimum INR 1 cr. Is commenced an application is to be filed with adjudicating authority . after which interim resolution professional is appointed by the adjudicating authority from the lists of insolvency professionals after which a committee of creditors is formed which will appoint resolution professional and the information memorandum will be prepared. After the invitation and submission of resolution plans the evaluation of plans will be done by the committee of creditors . if it is rejected by coc and adjudicating authority liquidation will be initiated .

Initiation Of CIRP By Financial Creditor

The process of initiation of CIRP is given under section 7 of IBC 2016 which states that the financial creditor by itself or by jointly with other financial creditors or on behalf of creditors (guardian , executor /administrator of estate , trustee , person authorized by board of company) file application to adjudicating authority within 14 days attaching the record of default , name of resolution professional and information specified by board . on the basis of the evidence furnished the adjudicating authority shall admit application if satisfied or reject it .it may also order to rectify the defect after giving notice to applicant with 7 days . if the application is admitted within 7 days it is to be communicated to financial creditor and corporate debtor . if the application is rejected within 7 days it is to be communicated to financial creditor and if no order is passed within 14 days the reasons are to be recorded for the same in writing

Section 7 of IBC 2016 states:
Initiation of corporate insolvency resolution process by financial creditor:

1. A financial creditor either by itself or jointly with 1[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.
   
   Explanation.-For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor.
    
2. The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed.
    
3. The financial creditor shall, along with the application furnish:
   
   1. record of the default recorded with the information utility or such other record or evidence of default as may be specified;
   2. the name of the resolution professional proposed to act as an interim resolution professional; and
   3. any other information as may be specified by the Board.
       
4. The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), 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 under sub-section (3).
    
5. Where the Adjudicating Authority is satisfied that:
   
   1. default has occurred and the application under sub-section (2) is complete, and there is no disciplinary proceedings pending against the proposed resolution professional, it may, by order, admit such application; or
   2. default has not occurred or the application under sub-section (2) is incomplete or any disciplinary proceeding is pending against the proposed resolution professional, it may, by order, reject such application: Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority.
       
6. The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5).
7. The Adjudicating Authority shall communicate:
   
   1. the order under clause (a) of sub-section (5) to the financial creditor and the corporate debtor;
   2. the order under clause (b) of sub-section (5) to the financial creditor, within seven days of admission or rejection of such application, as the case may be.
       

Initiation Of CIRP By Operational Creditor

section 8 of IBC 2016 provides for the process of initiation of insolvency resolution by operational creditor and section 9 of IBC 2016 provides for the application for insolvency resolution process by operational creditor . the operational creditor sends invoice and demand notice demanding payment to corporate debtor and within 10 days of such receipt if the corporate debtor does not do anything an application for initiating CIRP against corporate debtor may be filed within 14 days with following attachments:

• Copy of invoice and demand notice
• Affidavit (no dispute)
• Proposed IRP (optional)
• Record with IU
• Certificate from financial institution that debt not paid
• Prescribed info

Section 8 of IBC 2016 states:
Insolvency resolution by operational creditor:

1. An operational creditor may, on the occurrence of a default, deliver a demand notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed.
2. The corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor:
   1. existence of a dispute, 1[if any, or] record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute;
   2. the 2[payment] of unpaid operational debt:
      
      1. by sending an attested copy of the record of electronic transfer of the unpaid amount from the bank account of the corporate debtor; or
      2. by sending an attested copy of record that the operational creditor has encashed a cheque issued by the corporate debtor.

Explanation: For the purposes of this section, a "demand notice" means a notice served by an operational creditor to the corporate debtor demanding 2[payment] of the operational debt in respect of which the default has occurred.

Initiation Of CIRP By Corporate Applicant

The corporate applicant my send application for CIRP to adjudicating authority and within 14 days if adjudicating authority is satisfied that there is no pending proceeding against proposed RP it may admit it and even if there is pending proceedings again RP it may order to rectify if it is rectified and adjudicating authority may admit it and if it is not rectified with 7 days it will be rejected as per section 10 of IBC 2016.

Limitations
Section 11 of IBC 2016 states that the application cannot be made

Section 11 of IBC 2016 states:
Persons not entitled to make application:
The following persons shall not be entitled to make an application to initiate corporate insolvency resolution process under this Chapter, namely:

1. a corporate debtor undergoing a corporate insolvency resolution process; or
2. a corporate debtor having completed corporate insolvency resolution process twelve months preceding the date of making of the application; or
3. 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
4. a corporate debtor in respect of whom a liquidation order has been made.

Explanation: For the purposes of this section, a corporate debtor includes a corporate applicant in respect of such corporate debtor.

Withdrawal Of Application
As per section 12A of IBC 2016 the application made under section 7 , under section 9 and under section 10 of IBC 2016 can be withdrawn before admission with permission of adjudicating authority and if it is admitted then:

1. Before constitution of coc: application is to be submitted to adjudicating authority through IRP
2. After constitution of coc: application is to be made to coc and if it is approved within 3 days application is to be made to adjudicating authority and it can be withdrawn with the approval of adjudicating authority

Section 12A of IBC 2016 states:
12A. Withdrawal of application admitted under section 7, 9 or 10:
The Adjudicating Authority may allow the withdrawal of application admitted under section 7 or section 9 or section 10, on an application made by the applicant with the approval of ninety per cent. voting share of the committee of creditors, in such manner as may be specified.]

Time Limit For Completion Of CIRP
As per section 12 of IBC 2016 CIRP is to be completed within 180 days from commencement . if in case not possible within 180 days then a meeting of coc should be held and by 66% votes approval RP will be instructed to apply for extension and shall file application to adjudicating authority , the adjudicating authority may grant one time extension of not more than 90 days .

Section 12 of IBC 2016 states:
Time-limit for completion of insolvency resolution process:

1. Subject to sub-section (2), the corporate insolvency resolution process shall be completed within a period of one hundred and eighty days from the date of admission of the application to initiate such process.
    
2. The resolution professional shall file an application to the Adjudicating Authority to extend the period of the corporate insolvency resolution process beyond one hundred and eighty days, if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of 2[sixty-six] per cent. of the voting shares.
    
3. On receipt of an application under sub-section (2), if the Adjudicating Authority is satisfied that the subject matter of the case is such that corporate insolvency resolution process cannot be completed within one hundred and eighty days, it may by order extend the duration of such process beyond one hundred and eighty days by such further period as it thinks fit, but not exceeding ninety days: Provided that any extension of the period of corporate insolvency resolution process under this section shall not be granted more than once.

Conclusion
Hence it can be concluded with the above discussions that the CIPR can be initiated by corporate debtor , financial debtor and operational debtor and after the application admission the adjudicating authority will pass three orders , firstly , the appointment of IRP as per section 16 of IBC 2016 secondly , the public announcement for calling the claims as per section 15 IBC 2016 and thirdly, the declaration of moratorium as per section 14 of IBC 2016 .

References:

• https://www.advocatekhoj.com/library/bareacts/insolvencybankruptcy/7.php
• https://www.advocatekhoj.com/library/bareacts/insolvencybankruptcy/8.php
• https://www.advocatekhoj.com/library/bareacts/insolvencybankruptcy/11.php
• https://www.advocatekhoj.com/library/bareacts/insolvencybankruptcy/12.php
• https://www.advocatekhoj.com/library/bareacts/insolvencybankruptcy/12.php

End-Notes:

1. Subs. by Act 26 of 2018, s. 4, for "other financial creditors" (w.e.f. 6-6-2018).