Fast Track CIRP

The author in this article discusses Chapter 2 of the Insolvency and Bankruptcy Code that contains the provisions for the process of CIRP and it could be said that the enactment of the Code could help in reducing the number of NPA in a faster manner.
Estimated Reading Time: 8 minutes

Introduction 

The Insolvency and Bankruptcy Code, 2016 (hereinafter referred as the Code) was introduced to speed up the process of dissolution. The resolution process took about 4.3 years on average for completing the process of dissolution as compared to 1 year and 1.5 year for United Kingdom and United States respectively, it took much time. After the introduction of the act, this duration has come down to 1.6 years in India as of 2019.

Before the introduction of the Code, called Sick Industrial Companies (Special Provisions) Act, 1985 governed the provisions and procedure of Insolvency and Bankruptcy. Board of Industrial and Financial Resolution aimed at revival of the companies declared “sick”. The time for revival took much of the court’s time and resources and thus the Code was introduced. Under the Code, new tribunals named National Company Law Tribunal and National Appellate Country Law Tribunal were incorporated. 

The Code aims for a timebound resolution for the insolvency process and it would not be wrong to conclude that the Government is able to achieve the set target. Chapter 2 of the Code contains the provisions for the process of Corporate Insolvency Resolution Process. 

Need of Fast Track Proceedings

The Insolvency and Bankruptcy Code, 2016 has significantly helped significantly to reduce the time for the insolvency process. Further, the Code provides for Fast Track Corporate Insolvency Process, which allows the operational creditor and corporate debtor to file for an insolvency process to recover debt or dissolve the corporate person for whatever reason respectively. Also, to make a trust for the foreign creditors as it would help them recover their debt faster. This will increase the ranking of India in ease of doing business. 

To initiate a Fast Track Corporate Insolvency Resolution Process in respect of the Corporate Debtor, the company can be a be small company as defined under clause 85 of the Companies act, 2013, an unlisted company with total assets reported in the financial statement of not more than INR 1 crore or start-up (other than a partnership firm).

Completing an insolvency procedure in just 90 days (which could be extended for not more than 45 days) couldhelp the corporate debtor to recover the debt in a faster manner, and does not has to wait for 180 days as compared to the usual method. Also, the small companies can be dissolved within the stipulated time which would also help in reduce the burden of court. 

India being a fast-emerging nation, a fast track corporate insolvency resolution process as provided under the Code will encourage upcoming businesses and start-ups and will prove an easier gateway for the failed business ventures.

Initiation of Proceedings

The fast track corporate insolvency process has been provided in Chapter 4 of the Code and can be initiated under Section 55 of the Code. Section 56 of the Code provides 90 days of duration for the Corporate Insolvency Resolution Process. 

An application for fast track CORPORATE INSOLVENCY RESOLUTION PROCESS can be filed by the creditor or the corporate debtor depending on the situation. The proof of such existence of default should be available by records with an information utility or any other means as specified by the board.

Section 58 of the Code states that procedure is duly stated in the Chapter II of the Code. 

When there is a default by the corporate debtor then for recovery of the debt the process can be initiated by the financial creditor or the operational creditor. The corporate debtor can itself initiate the process for resolution in such situation.

Initiation of CORPORATE INSOLVENCY RESOLUTION PROCESS by the financial creditor is mentioned in Section 7 of the Code. The financial creditors can alone or jointly can initiate the proceedings. It needs to follow the following steps to initiate the corporate insolvency resolution process:

  1.  The applicant has to submit an application u/s 55(1) of the Code in the specific form and manner along with the fee prescribed
  2. The financial creditor shall furnish the following documents along with the application:
  1. A record of the default along with the other information or evidence of records indicating the default
  2. The name of the Interim resolution proposed 
  3. Other information which may be required to furnish at the discretion of board.
  1. Once the application has been received by the adjudicating authority u/s 7(2) of the Code, it will determine the existence of a default from the records of information furnished and other evidence submitted u/s 7(3) of the Code. This has to be done in 14 days from receipt of the application. However, this period is directory and not mandatory.
  1. When the authority is satisfied with the occurrence of default and the application is complete u/s 7(2), and there are no disciplinary proceedings pending against the Interim Resolution Professional, the application is admitted
  2. In case either the default has not occurred or the application is incomplete or there is any ongoing disciplinary proceeding is going against the Interim resolution professional, then in such case before the application can be rejected, the authority grants a time period of 7 days from to date to receipt of Notice to complete the application. However, this time period is directory in nature and not mandatory. 

The process for initiation of the CORPORATE INSOLVENCY RESOLUTION PROCESS for an operational creditor is:

  1. An operational creditor on the occurrence of the default by the corporate debtor issue 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 then has ten days to from the date of receipt of the demand notice or copy of the invoice as mentioned u/s 7(1) of the Code to:
  1. Already a dispute exists and the record of pendency of such suit or arbitration filed before the receipt of demand notice or invoice;

*Illustration: The word has been interpreted in the case of Macquarie Bank Ltd v Shilpi Cable Technologies, wherein the petition was rejected on existence of dispute. The Supreme Court interpreted the meaning of the word “dispute”. The Supreme Court inferred the legislative intent of the word and not the literal meaning. The Supreme Court compared the definition of the word in the Code with that of bill. It held that the word meant for a dispute in the court of law and not among the parties.

  1. The debt has been paid
  1. The debtor can send an attested copy of transfer of amount from the bank account of the corporate debtor.
  2. By sending an attested copy of the record showing the cheque encashed by the operational creditor 

Hence, after completion of the due process, the application is admitted and further proceedings are initiated. Once the court has admitted the application, the Interim Resolution Professional is appointed.

Without bias to Section 17(2)(d), the interim resolution professional may get to the access books of record, records and other significant reports and data, to the degree required for discharging his obligations under the Code, of the corporate debtor held with-

  1. depositories of securities;
  2. professional advisors of the corporate debtor;
  3. information utilities;

(d) other registries that record the ownership of assets

(e) members, promoters, partners, the board of directors and joint venture partners of the corporate debtor; and

(f) contractual counterparties of the corporate debtor.

The announcement should be made regarding the liquidation of the corporate debtor in the following way:

  1. In the regional language newspaper with wide circulation at the registered office and any other location which the liquidator deems to be appropriate along with one English newspaper
  2. It shall be mentioned on the website (if any) of the corporate debtor
  3. On the website designated by the board of the sole purpose

It is to be noted that a when the Corporate Insolvency Proceedings are initiated, it cannot be converted into fast track one as Section of the Code limits only to the operational creditors.

Process of Fast Track CORPORATE INSOLVENCY RESOLUTION PROCESS

Claims by an operational debtor

Claims by Operational Creditors An operational loan boss, other than labourer or worker of the corporate debtor, will submit confirmation of his case to the interim resolution professional in person, by post or by electronic methods in Form B. Given that such individual may submit beneficial archives or explanations on the side of the case before the constitution of the board of trustees.

The existence of debt due to the operational creditor under this Regulation may be proved on the basis of-

(a) “the records available with an information utility, if any; or

(b) other relevant documents, including –

(i) a contract for the supply of goods and services with the corporate debtor;

(ii) an invoice demanding payment for the goods and services supplied to the corporate debtor;

(iii) an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any; or

(iv) financial accounts.

(i) a contract for the supply of goods and services with corporate debtor;

(ii) an invoice demanding payment for the goods and services supplied to the corporate debtor;

(iii) an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any; or

(iv) financial accounts”

Appointment of the Valuer

Once the court has admitted the application, it will initiate the fast track CORPORATE INSOLVENCY RESOLUTION PROCESS. It requires the resolution professional to appoint a valuer within seven days of his appointment, who is registered and he liquidation value of the corporate debtor is in accordance with Regulation 34. The valuer has to appraise the value of the assets depending on the circumstance and conditions. The values must appraise such a price that 

The person who cannot be appointed as valuer are namely:

  1. a relative of the resolution professional;

(b) a related party of the corporate debtor;

(c) an auditor of the corporate debtor at any time during the five years preceding the insolvency commencement date; or

(d) a partner or director of the insolvency professional entity of which the resolution professional is a partner or director.”

Time Period

The time period prescribed u/s 56 of the Code, the Fast track Corporate Insolvency Project should be completed with in 90 days from the commencement of the Insolvency. An application needs to be filed before the Adjudicating authority in case an extension is required beyond the period of 90 days, if instructed by the committee of creditors through a resolution passed and supported by 75% vote. 

If the adjudicating authority is satisfied by the application submitted by Resolution Professional, that the fast track CORPORATE INSOLVENCY RESOLUTION PROCESS cannot be completed within 90 days can extend the proceeding. However, this extension cannot be more than a period of 45 days and could be granted only once.

Conclusion

The enactment of the Code will help the Government with the help of Judiciary to reduce the Non-profitable accounts, due the increasing number. In the case of personal insolvency, the Adjudicating authority is the Debt recovery tribunal whereas for the corporate person it is the National Company Law tribunal. When the court is not able to arrive to at a timely solution, the corporate identity is liquidated to pay off its bad debt. Due to many loans being sanctions in early and mid-2000, the number of NPA is on a significant rise. After the enactment of the Code, 701 cases were registered out of which 176 cases were resolved as of March 2018. Thus, it could be said that the enactment of the Code could help in reducing the number of NPA in a faster manner. 

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