Insolvency Resolution Process for Individual & Partnership Firms

Estimated Reading Time: 12 minutes


The Insolvency Resolution Process is defined under the Insolvency and Bankruptcy Code, 2016 (IBC). Corporate insolvency resolution process (CIRP) is a recovery mechanism under the Insolvency and Bankruptcy Code, 2016 (IBC) which allows a financial creditor or corporate to file an application before National Company Law Tribunal (NCLT) for initiating CIRP when a default takes place against the debtor. It is a recovery Mechanism for Creditors. An action can initiated by a Financial Creditor under Section 7 and Operation Creditor under Section 9 of the code and by the corporate debtor under Section 10 of the IBC, 2016. The Financial creditor can himself or jointly can initiate filing of application before the NCLT against the corporate debtor for insolvency proceeding. An Operational Creditor have up-to 10 days to serve prior notice to the debtor for the debtor to provide his money back before initiating any such process. An Insolvency process must be completed within 180 days from the date of initiation in NCLT.

Insolvency Resolution Process

  1. Application for initiating insolvency resolution process
  2. Interim moratorium
  3. Appointment of resolution professional
  4. Submission of report by resolution professional
  5. Decision of adjudicating authority
  6. Moratorium period
  7. Public notice and invitation of claims from creditors
  8. Registration of claims
  9. Preparation of list of creditors
  10. Repayment Plan
  11. Report by resolution professional on repayment plan
  12. Calling meeting committee of creditors
  13. Convening meeting of committee of creditors
  14. Approval of repayment of plan by creditors
  15. Report of convened meeting of committee of creditors

Who can initiate Insolvency Resolution process

The Insolvency Resolution process can be initiated by:

  1. Debtor- A debtor can apply individual or through a resolution professional (RP), to the adjudicating authority for initiating the insolvency resolution process, by submitting an application under section 94. If the debtor is a partner in the firm, then he shall not apply under to the adjudicating authority (AA) in contrast to the firm until all the partners of the fill the said application jointly. A debtor may not be entitled make an application if
  2. An Undischarged Bankrupt;
  3. Undergoing a fresh start process;
  4. Undergoing an insolvency resolution;
  5. Undergoing a bankruptcy process.
  6. Creditor- A creditor either individual or jointly with other creditors or thorough a resolution professional may apply to the AA for the initiation of the insolvency resolution Process by submission of an application under section 95. A Creditor may apply for such a process against any one or more partners in the firm or the firm as an entity. The application should be accompanied by the details and documents relating to
  7. the debts owed by the debtor to the creditor or creditors submitting the application for insolvency resolution process as on the date of application;
  8. the failure by the debtor to pay the debt within a period of fourteen days of the service of the notice of demand; and
  9. relevant evidence of such default or non-repayment of debt.
  10. a copy of the application made to the debtor.

Interim Moratorium

After the filling of such application the process of Interim Moratorium commences from the date of filing of an application or insolvency resolution, in relation to all the debts and ceases to have effects on the date of admission of the is stated under section 96 of the Code.  During such a period –

  1. any pending legal action or proceeding in respect of any debt shall be deemed to have been stayed; and
  2. the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt.

Appointment of Resolution Profession (RP)

Next, the Resolution Profession (RP) is appointed under section 97. Personnel appointed to conduct the corporate insolvency resolution process. If the application filed comes under the ambit of section 94 and 95 and is filled by the resolution Professional, then the AA directs the Insolvency and Bankruptcy Board of India (Board) to confirm under 7 days that no current disciplinary proceeding is pending against the RP. If the application is filed by the applicant himself, or the AA finds disciplinary proceedings against the RP proposed by the applicant, the AA appoints an RP from the panel of IPs shared by the Board. RP has to examine the application referred under section 94 or 95 as the case may be under 10 days of his appointment and submit a report to AA in recommendation for either approval or rejection of the application.

Also Read  Women directors under the Companies Act

Documents required

Where in the case the application filed under section 95 then the RP may require the debtor to prove repayment of the debt claimed as unpaid by the creditor by providing such documents-

(a) evidence of electronic transfer of the unpaid amount from the bank account of the debtor;

(b) evidence of encashment of a cheque issued by the debtor; or

(c) a signed acknowledgment by the creditor accepting receipt of dues.

In a case where the creditor is registered with the information utility already then, the debtor shall not be entitled to dispute the validity of such debt. The resolution professional for further examination of the application filed may gather or collect information from the debtor or the creditor or any person in concern of such application then the person may provide such information to RP. The person from whom information or explanation is sought shall furnish such information or explanation within seven days of receipt of the request. The RP should satisfy that –

(a) the application satisfies the requirements set out in section 94 or 95;

(b) the applicant has provided information and given explanation sought by the resolution professional.

Approval or rejection

After such consideration and examination, he may recommend either approval or rejection of the application. If RP finds that the debtor is eligible for a fresh start under Chapter II, the resolution professional shall submit a report recommending that the application by the debtor under section 94 be treated as an application under section 81 by the Adjudicating Authority. A Record shall be maintained for the reasoning of acceptance or rejection of the filed application. The application may then be accepted or rejected under section 100 of the Code.

On application for Insolvency resolution processes initiated and submitted to the AA under section 100, period of moratorium period shall come into force and thereafter it shall terminate at the end of 180 days commencing from date on which such an application was admitted for insolvency resolution process. During the moratorium period-

  • any pending legal action or proceeding in respect of any debt shall be deemed to have been stayed;
    • the creditors shall not initiate any legal action or legal proceedings in respect of any debt; and
    • the debtor shall not transfer, alienate, encumber, or dispose of any of the assets or his legal right or beneficial interest therein;

If the application is made under 96 has been made in relation to a firm, then the moratorium shall operate against all the partners of the firm.

Registration of claims by creditors is stated under section 103 which defines that all the creditors shall register in order to claim by sending details of the claims through electronic communication or through a courier’s service or speed post or registered letter. Rp also have 

Replacement of resolution Professional is stated under section 98 of the Code. The section states that if the debtor or creditor is of the opinion that the RP appointed under section 97 is required to be replaced then he may apply to AA for replacement. The AA then under 7 days of the receipt application make a reference to the Board for replacement for Such RP. The RP shall also prepare a list of creditors under section 104 of the code –

  • the information disclosed in the application filed by the debtor under section 94 or 95, as the case may be;
  • claims received by the resolution professional under section 102

and such list is to be produced before 30 days of the notice.

Repayment plan

The Resolution Professional by providing consultation to the debtor prepares the repayment plan which contains a proposal to the creditors for restructuring of his debts or affairs. The repayment plan may authorise or require the resolution professional to –

  • carry on the debtor’s business or trade on his behalf or in his name; or
  • realise the assets of the debtor; or
  • administer or dispose of any funds of the debtor.
Also Read  Role of Non-Executive Director in a Company


The repayment plan shall include the following, namely: –

  • justification for preparation of such repayment plan and reasons on the basis of which the creditors may agree upon the plan;
  • provision for payment of fee to the resolution professional;
  • such other matters as may be specified.

Notice calling the meeting of the creditors

After which the RP issues a notice calling the meeting of the creditors before 14 days of the date for the meeting fixed. The notice is sent according to the list of creditors under section 104. A meeting is then conducted in accordance 109, 110 and 111. The meeting between is conducted under section108 and then the creditors may decide to accept or reject the repayment plan. A report of the meeting between the creditors is created under section 112 of the Code.

Under section 114 report from the decision under section 112 taken in the meeting is provided to AA and AA then by an order may either approve or reject on the basis of the report prepared by RP under section 106. If the AA approves the repayment plan, then it may also provide some directions for the implementation of such repayment plan. If the AA is of the opinion that the repayment plan requires some modification, then it may direct the RP to recall the meeting of the creditors for a reconsideration on the repayment plan. Under section 115 the effects of the order are defined under If the AA approves the repayment plan under section 114 then the repayment plan shall –

(a) take effect as if proposed by the debtor in the meeting; and

(b) be binding on creditors mentioned in the repayment plan and the debtor.

And if rejected the repayment plan then the debtors and creditors may file an application under chapter IV. After which under section 116 discuss about the implementation and supervision of repayment plan which declared that RP shall supervise the application filled under section 97 and 98 of the code. The RP may also move to AA for direction if necessary, in relation to any particular matter arising under the repayment plan. At last Discharged order will be applied by the RP to the AA for a discharge order to the debts which are represented in the repayment plan and the adjudicating authority may pass such order for discharge. The repayment plan may provide for –

(a) early discharge; or

(b)discharge on complete implementation of the repayment plan

The discharge order is further forwarded to the Board for the purpose of recording entries in the register referred under section 196 of the Code. The order only discharges the Debtor and no other person liability to pay is discharged.


The process of Insolvency resolution has the objective of such reorganisation and resolution is maximisation of value of assets of the persons to promote entrepreneurship, enhance availability of credit, and balance of the interests of all stakeholders. The process can provide easy recovery of credit for creditors and discharge from liabilities, if all the concerned persons co-operate with the appointed resolution professional for fluent and effective process. The Insolvency and Bankruptcy Code provides the opportunity to the Financial Creditor or Operational Creditor or the debtor as a comprehensive legislation with a procedure for dealing with issue of insolvency.

Through IBC the process of Insolvency resolution has been made efficient and effective. It provides a time bound method for the maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in order of priority of payment of Government dues and to establish an insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.