THE

INSOLVENCY &
BANKRUPTCY
ROUNDTABLE
2020

BRIEFING
DOCUMENT

Enacted in May 2016, Insolvency and
Bankruptcy Code (“IBC”), 2016 continues to
be reckoned, by critics and supporters alike,
as a “game changer” in the field of Indian
financial laws. The Insolvency (Second
Amendment) Act, 2018 (“Second
Amendment”), which came into force on June
6, 2018 introduces significant changes to IBC,
2016. The Second Amendment widens the
application of IBC to cover personal
guarantors. It attempts to provide reliefs to
certain stakeholders, such as allottees under
a real estate project (home buyers), by
including them into the ambit of a financial
creditor, and to certain promoters of a MSME
(who may have NPAs or may stand as personal
guarantors for the corporate debtor company)
by permitting them to be resolution
applicants. Furthermore, the Second
Amendment also provides for another
opportunity to the Corporate Debtor Company
to settle its debts with its debtors even after
admission of an insolvency petition by way of
withdrawal of a case by the concerned
applicant with the approval of 90% voting
share of the Committee of Creditors (“CoC”).
The voting threshold for the CoC has been
brought down to 66% from 75% for all major
decisions such as approval of resolution plan,
extension of the Corporate Insolvency
Resolution Process (“CIRP”) Period, and to
51% for routine decisions. The existing
Section 29A of the IBC, 2016 has also been
amended to provide for exemptions and
grace-periods to certain resolution
applicants.
The Hon’ble Supreme Court in the matter of
Swiss Ribbons Pvt. Ltd. & Anr v. Union of
India & Ors1, has upheld the constitutional
validity of the IBC, 2016 and stated: “ (…)
figures show that the experiment conducted
in enacting the Code is proving to be largely
successful. The defaulter's paradise is lost. In
its place, the economy's rightful position has
been regained.”
It is also interesting to note that the RBI
report on trends and progress of banking in
1 ((2019) 4 SCC 17)
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India for 2017-18 finds that India’s insolvency
resolution score and recovery rate has
improved substantially in the World Bank’s
Ease of Doing Business Index, after
introduction of IBC 2016.2
However, from a legal and jurisprudential
view, the Insolvency and Bankruptcy Code,
2016 continues to remain a Hohfeldian mine-
field of various jural rights, duties, privileges,
power, liabilities and immunities of the
several stake-holders and participants who
are involved in the Corporate Insolvency
Resolution Process including operational
creditors, financial creditors, resolution
applicants, the CoC, corporate debtors,
resolution professionals, personal guarantors,
corporate guarantors, to name a few. While
the Hon’ble Supreme Court and the Hon’ble
NCLTs have on a case-to-case basis sought to
determine some of these issues3, several
2 Reserve Bank of India, Report on Trend and Progress of
Banking in India 2017-18, Pg 34
3 Such as, balancing the interests of operational creditors
in resolution plans (Binani Industries Ltd. v Bank of
Baroda [2018 SCC OnLine NCLAT 521]); defining the
contours of the powers of a Resolution Professional as
being administrative and by checking the exercise of
powers by a Resolution Professional while running the
corporate debtor company (Swiss Ribbons Pvt. Ltd. &
anr. v Union of India & Ors. [(2019) 4 SCC 17]); by
excluding personal guarantors from the scope of the
moratorium and the benefits of the resolution plan (State
Bank of India v V. Ramakrishnan [2018 SCC OnLine SC
963]); by holding that resolution applicants to have no
vested rights in his resolution plan being considered
Arcelormittal India (P) Ltd. v. Satish Kumar Gupta,
((2019) 2 SCC 1); by allowing for clubbing of insolvency
petitions against group corporate debtor companies
(Judgement dated 24.10.2018 in Venugopal N. Dhoot v
State Bank of India & Ors (Company Application No. 1022
(PB) of 2019)); by empowering the CoC to consider
improved financial offers (Binani Industries Ltd. v Bank of
Baroda [2018 SCC Online NCLAT 521]); by upholding the
right of operational creditors to file a suit or an
application against the corporate debtor after
completion of the period of moratorium etc. [Order dtd.
01.02.2019 passed by the Hon’ble NCLAT in Prasad
Gempes vs. Star Agro Marine Exports Pvt. Ltd. & Ors.(
Company Appeal (AT) (Insolvency) No. 291 of 2018)]; to
allow for a scheme of arrangement under 230 of
companies act at the time of liquidation proceedings.
[Judgement dated 22.02.2019 in Company Appeal (AT)
(Insolvency) No. 793 of 2018]
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important issues of law are still pending
conclusive determination. A few such points
of concerns/ deliberation are elaborated
upon hereinunder:
I. PAYMENT/COMPENSATION TO
EMPLOYEES OF A COMPANY UNDER
CRP
A recent judgment of the Hon’ble NCLT,
Mumbai Bench has held that
discretionary payments / bonuses are not
an entitlement of the employees under
their dues. It was found by the Hon’ble
Tribunal that what was sought by the
employees was over and above the
salaries, an amount which depends upon
the individual employees’ performance
and the performance of the Corporate
Debtor. The Hon’ble Tribunal held that it
would not be correct to hold that
discretionary payments/performance
linked payments are an integral part of
the employees’ salary as the governing
policy is based on the absolute and
relative performance of the Corporate
Debtor as well as the individual
employee’s performance. The Hon’ble
Tribunal further held that it would be
unfair to press for performance linked
payment to employees which in terms of
policy is, inter-alia, dependent upon the
financial health and cash flow of the
Corporate Debtor. Since the Debtor was
insolvent and cash flow was precarious,
the employees cannot press for payment
of performance related incentives.
II. PERFORMANCE BANK GUARANTEES:
WHETHER CAN BE INVOKED
AUTOMATICALLY GIVEN THE
EXCEPTION IN SECTION 14
Before the NCLT, Mumbai Bench it was
argued in a matter that merely because a
performance bank guarantee exists, an
entity cannot approach the Hon’ble
Tribunal and get such bank guarantee
4 2017 144 SCL1 (SC)
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invoked during moratorium as a matter of
right if it can be established that money is
infact not due under the contract. It is a
provision of law under the IB Code that
Section 14 does not apply to a
performance bank guarantee. However,
the Tribunal held that since there was an
ongoing dispute between the Parties
regarding the issue of non-completion of
contract, the entitlement of encashment
of a bank guarantee is a contractual
dispute. Being a contractual dispute, it has
to be adjudicated by the Commercial
Court in view of the arbitration clause in
the contract. The Hon’ble Tribunal held
that the correctness of the invocation of
performance bank guarantee shall be
decided by the Arbitrator before whom the
contractual dispute is pending, post
moratorium.
III. THE ROAD AHEAD FOR HOME
OWNERS UNDER THE IBC
With the Supreme Court upholding the
rights of home-buyers in the landmark
judgement Chitra Sharma v. Union of
India4 and the subsequent amendment of
the IBC to include the same in its
provisions, a lot has changed for this group
of creditors. While it does seem like a
welcome move towards addressing the
plight of thousands of home buyers who
would have been rendered remedy-less by
real estate developers, given the
complexity of transactions, the scenario
may still be foggy and unclear. The
following are a few of the lacuna observed
in relation to the rights of home
buyers/allottees.
A. Secured or unsecured?
Prior to The Insolvency and Bankruptcy
Code (Second Amendment) Act, 2018
(“Second Amendment”), there was no
2

clarity regarding home-buyers rights,
either as financial or operational creditors
under IBC. Thus, home-buyers were unable
to assert their rights for initiating an
insolvency resolution process and
participate in the CoC. This ambiguity
enabled real estate developers to sideline
the claims of home-buyers as was noticed
in the Jaypee Infra case.
Pursuant to the amendment in the
definition of financial creditors under IBC,
homeowners came under the purview of a
financial creditor thereby enhancing their
position. They now hold the right to file
insolvency proceedings under Section 7 of
the IBC against their defaulting real estate
developer (Promoters). They are also now
a part of the Committee of Creditors. This
has also been upheld by the Supreme
Court in the recent landmark judgment of
Pioneer Urban Land and Infrastructure
Limited v. Union of India. Under Section 53
of the Code, secured creditors have a
priority over unsecured financial creditors
in being repaid as per the ‘waterfall
mechanism’. Waterfall mechanism refers
to the order of priority of being repaid
with the proceeds. In some cases it is not
far-fetched to assume that home-buyers
would be secured creditors for e.g. when a
developer promises the home-
buyer/allottee/investor the right to sell
back the house after a specific period for a
certain price. Even the Real Estate
(Regulation and Development) Act, 2016
(“RERA”) provisions, more specifically
Section 11(4)(h), (which prohibits creation
of mortgage on a unit on which agreement
to sell has been executed) and Section 8
proviso (first right of refusal of allottees in
case of revocation of registration) gives
the impression that home-buyers are in
fact secured in their rights as a financial
creditor.
This conundrum has also finally been
resolved by the Supreme Court in the
landmark judgment of Pioneer Urban Land
and Infrastructure Limited v. Union of
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India. The Supreme Court came to the
conclusion that ‘allottees are unsecured
creditors’. However, it may be noted that
developer lobbies such as the
Confederation of Real Estate Developers
Association of India (CREDAI) being
aggrieved parties under the Pioneer
Judgment have written to the Prime
Minister’s Office, requesting amendments
to the Code. CREDAI believes that there is
a high chance that the amended Code
could be misused by trigger happy home-
buyers. It is CREDAI’s demand that the
consent of at least two-third of allottees
of a project be required to trigger IBC
proceedings against a promoter. However,
it will have to be seen if developers will be
able to convince the Hon’ble Supreme
Court or the Legislature through their
representation.
B. Default
Another issue that arises with regard to
the inclusion of home-buyers as a financial
creditor is the issue of when the “default”
will have occurred. Under the IBC a
financial creditor may file an application
under Section 7 of the Code to initiate
CIRP when a default on the part of the
corporate debtor occurs. The section
further in its explanation clarifies that the
default can be against not only the
financial creditor but also against any
other financial creditor of the corporate
debtor. However, this explanation falls shy
of explaining exactly when default is said
to have occurred, especially in the case of
a home buyer. Usually in lending situations
there is a clear stipulation as to when an
amount becomes due and must be paid
i.e. there is a clear repayment schedule.
There, it is easy to say that on default of
any such payment stipulated there arises a
cause of action for initiating CIRP. In the
case of homebuyers it is unclear exactly
when the default arises. Certain experts
are of the opinion that a mere delay in
delivery is not a cause of action for
initiating proceedings under Section 7 of
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IBC; it is a performance default. So would
that mean that a default only arises when
a developer fails to compensate the home
buyers in the instance of any delay in
giving possession? Perhaps a default arises
when the homebuyer withdraws from a
project and seeks a refund which the
developer is unable to give. In any case, a
clear picture cannot be drawn as of yet.
C. Balancing Acts: RERA v. IBC
Both RERA and IBC are special in their
nature, but it has been observed that the
RERA has become subservient to the IBC,
more so since the IBC was passed after
RERA came into force. The Hon’ble
Supreme Court of India, in the Jaypee
Infra matter, stayed all the suits and
proceedings, including the proceedings
initiated before RERA. This approach has
the potential of undermining RERA, which
otherwise is an equivalent legislation.
However, in the recent landmark
judgment of Pioneer Urban Land and
Infrastructure Limited v. Union of India the
Supreme Court held that the remedies of a
homebuyer were concurrent remedies
under the Consumer Protection Act, RERA
and the IB Code. Further, it was also held
that the IB Code and RERA have to be
harmoniously construed. However, it was
clarified that in the event of a clash, RERA
must give way to the Code.
The two legislations differ on their
inherent objectives i.e RERA seeks to
protect consumers and IBC protects the
creditors. While IBC was passed with the
intention to smoothen the process of
“resolution of debt”, RERA has been
implemented to “regulate and formalise
the real estate sector”. But, in case of
insolvency initiated by home-owners as
creditors, the objectives of these two acts
are often getting pitted against one
another.
Possible conflict of interest in the two
Acts:
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a) RERA provides a right to claim
interest in case of delayed
possession. In such an event of
delayed possession the right recourse
for the buyer to pursue can be
confusing. As stated earlier, perhaps
on failure to pay such interest
amount the buyer may initiate CIRP.
b) RERA provides that after 51% of the
bookings in the project are made, a
society must be formed and
conveyance is to be given to such
society. They also have the first right
of refusal once a new realtor takes
over. It is then unclear whether on
institution of CIRP whether the
society still will retain any of these
rights.
c) Any changes in the approved plan of
the project must go through the
buyers as stated in RERA. This seems
unlikely in the case of CIRP and
obviously impossible in case of
liquidation proceedings. (It is
interesting to note that only 8% of the
allottees in the Jaypee Infra case
wanted refunds, the rest wanted
possession of property).
Therefore, in conclusion, a much needed
clarification has been provided by the
landmark judgment of Pioneer Urban Land
and Infrastructure Limited v. Union of
India. It has been held that the IB Code
and RERA have to be harmoniously
construed and in the event of a clash,
RERA must give way to the Code. To note
that the the judgment is not as one-sided
as it may seem as developers also have
certain defences against homebuyers, in
that the developer could show that the
allottee is a speculative buyer and not
someone who has invested his lifesavings
in the property. Another defence open to
the developer is that it could prove that in
the background of a failing real estate
market, the allottee is not willing to fulfil
its obligations to take possession under
RERA but wants of jump ship and get back
monies already paid by it. However,
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developers cannot escape the authority
that a home-buyer would enjoy under the
Code and the judgment, in case there is
any delay in the completion of the
project.
Home buyers are individuals and home
buying is an emotional issue which as it is
requires disbursement of money in huge
amounts. Looking to the law on expenses
to be handled by the Applicant-Creditor,
home-buyers would have a much larger
burden to bear as compared to other
financial creditors, which usually are
banks and financial institutions that can
handle such a burden.
IV. COSTS OF CIRP
On 06.03.2018, the Hon’ble NCLAT, in the
matter of SBI vs. SKC Retails Ltd.5 through
IRP & Anr., held that the Applicant is
liable to incur the expenses of resolution
professional as per sub-regulation (1) of
Regulation 33 of Insolvency and
Bankruptcy Board of India (Insolvency
Resolution process for Corporate Persons)
Regulations, 2016. Thus the applicant is
liable to bear all the expenses as
explained in sub-regulation 4 of Regulation
33, and he can get the amount reimbursed
by the Committee of Creditors to the
extent the amount ratified by the
Committee.
In certain Company Appeals before the
Hon’ble NCLT Chennai, it had held vide
Orders dated 26.10.2017 and 14.11.2017
that CoC shall bear all the expenses of IRP
in addition to the public announcement
expenses incurred by the IRP to invite
claims under Regulation 6 and these
expenses have to be paid irrespective of
the fact that no securities are available
with the creditors. The Ld. Appellate
Tribunal however, recently modified the
NCLT orders and held that the Applicant,
who has filed the application under
5 [2018] 144 CLA 324
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Section 7 or 9 of IBC, is required to bear
the expenses as per sub-regulation (1) of
Regulation 33. The expenses will include
the fee to be paid to the interim
resolution professional and other
expenses, including the cost of engaging
professional advisors. Where the applicant
has not fixed expenses under sub-
regulation 1 of Regulation 33, the
Adjudicating Authority is required to fix
expenses. Thus, it is fair to say that the
applicant who files the application for
initiation of Corporate Insolvency
Resolution Process has to undertake other
expenses of the Insolvency Resolution
Professional, like his fees and cost of
engaging Professional Advisors, along with
the cost of public announcement, which
he can get reimbursed later by the
Company of Creditors.
The impact of such provisions and settled
law would mean that in case a home-buyer
decides to initiate proceedings against a
developer, the onus of paying, what would
be a substantial amount would lie on such
home-buyer. This could potentially impact
the benefit that the home-buyer could
have received from initiating proceedings
under the Code.
V. ROLE OF RP: ASPECTS – PRE AND
POST ARCELOR MITTAL VS.
SATISH KUMAR JUDGMENT.
A Resolution Professional is an integral
part of the Corporate Insolvency
Resolution Process. An RP or an IRP is
envisaged as a conductor of the entire
CIRP, assuming the role of the Board of
Directors which is suspended once the
application under Section 7 is filed and an
interim resolution professional is
appointed. The Committee for the
framework of the Code envisaged the Role
of the RP to be as follows:
“4. The law must appoint a
resolution professional as the
manager of the resolution period, so
5

that the creditors can negotiate the
assessment of viability with the
confidence that the debtors will not
take any action to erode the value of
the enterprise. The professional will
have the power and responsibility to
monitor and manage the operations
and assets of the enterprise. The
professional will manage the
resolution process of negotiation to
ensure balance of power between the
creditors and debtor, and protect the
rights of all creditors. The
professional will ensure the
reduction of asymmetry of
information between creditors and
debtor in the resolution process.
6. The law must ensure that access to
this information is made available to
all creditors to the enterprise, either
directly or through the regulated
professional.
7. The law must enable access to this
information to third parties who can
participate in the resolution process,
through the regulated professional.”
The RP thus seems to be a manager and
conductor of CIRP and a protector of rights
of the CoC. In Arcelor Mittal v. Satish
Kumar6 the court observed: “Thus, the
importance of the Resolution Professional
is to ensure that a resolution plan is
complete in all respects, and to conduct a
due diligence in order to report to the
Committee of Creditors whether or not it
is in order. Even though it is not necessary
for the Resolution Professional to give
reasons while submitting a resolution plan
to the Committee of Creditors, it would
be in the fitness of things if he appends
the due diligence report carried out by
him with respect to each of the resolution
plans.” It also stated that the role of the
RP is limited to “examine” and “confirm”
the resolution plan and must eventually
place it before the CoC for final approval.
6 C.P. (I.B.) No. 40/7/NCLT/AHM/2017
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Post the blanket ban on the corporate
debtor for applying as a resolution
applicant, a surge in the non-cooperation
by these debtors has been noticed. In
cases such as, M/s Naviplast Traders Pvt.
Ltd. and Ors v. M/s RG Shaw and Ors Pvt.
Ltd.7, RPs have also sought help from the
Hon’ble NCLT in such non-cooperation
matters. RPs also have a recourse qua
Section 236 of the IBC which allows for
action to be taken against non-compliance
with the Code through special courts.
In the matter of Central Bank of India and
the State Bank of India v. M/S. Ashok
Magnetics Ltd.3 the IRP made efforts to
take charge of the assets of the corporate
debtor, but there was stout resistance
from the corporate debtor. He, therefore,
prayed for police assistance to discharge
his functions as IRP. The NCLT directed the
Superintendent of Police in whose
jurisdiction the Registered Office and the
factory of the Corporate Debtor were
located to give proper Police assistance
and personal security to the IRP to enable
him to take charge of the assets of the
corporate debtor and perform the
functions as per the provisions of the
Code. The director of the corporate debtor
was also directed to furnish the books of
accounts, list of assets, list of financial
and operational creditors, list of
documents and other relevant particulars
as envisaged in the Code and extend all
co-operation.
VI. SAFEGUARDS AGAINST A
SELECTED RESOLUTION
APPLICANT FAILING TO GO
THROUGH WITH PLAN PROPOSED.
In the matter of Corporation v. Amtek
Auto Ltd. & Ors8 the resolution applicant
Liberty House Group defaulted in its
commitments after being approved as a
7 CP No. 186/2017
8 CA No. 561/2018
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resolution applicant. It expressed its
inability to comply with the commitments
on one pretext or another. While it is
argued by the resolution applicant that
this was not done ‘wilfully’ or ‘knowingly’
the fact remains that the entire process
had to be started afresh, as ordered by the
NCLT.
It has time and again been reiterated by
the Courts that the CIRP must be
conducted in a very timely manner and
that the IBC is bound by the time
constrains. Detractions such as these
defaults cause a huge dent in the pockets
and time of the various parties involved.
Pursuant to this issue, IBBI amended the
Insolvency and Bankruptcy Board of India
(Insolvency Resolution Process for
Corporate Persons) Regulations 2016,
through a notification dated 24.1.20199.
This notification inserted sub-regulation
4A under Regulation 36B which provides
that a request for resolution plans shall
require the resolution applicant, in case
its resolution plan is approved under sub-
section (4) of Section 30, to provide a
performance security. Such performance
security shall stand forfeited if the
resolution applicant, after its approval by
the Adjudicating Authority, fails to
implement or contributes to the failure of
implementation of that plan in accordance
with its terms and schedule.
A performance security is defined to mean
“security of such nature, value, duration
and source, as may be specified in the
request for resolution plans with the
approval of the committee, having regard
to the nature of resolution plan and
business of the corporate debtor”.
This amendment only solidifies what was
already a matter of good practice. The
Committee of Creditors for Amtek had also
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in the Resolution Plan stated that a
“performance guarantee” and also an
escrow account with 15% of the upfront
cash flow must be furnished by the
Resolution Applicant which was not only
ignored by Liberty but also the terms of
the performance guarantee were relaxed
and not pushed ahead by the CoC.
The lax attitude towards an important
safeguard is possible due to the need for
corporate debtors to go ahead with the
Resolution Plan in the constraint of time
and also indicates their desperation since
there were only two bidders (including
Liberty) for the matter. A paucity of
choice and pressure of time could be the
reasons why the CoC chose to rush ahead
with CIRP even at the cost of certain
safeguards.
Reports claim that an amendment to
Section 75 of the Code is underway which
will impose a penalty on defaulting
winning bidders. The amendment while
welcome is nonetheless a negative one
which will deter future bidders due to
their reluctance to face penalties.
VII. REGULATORY DUES: WHETHER
OPERATIONAL DEBT?
In an order passed by the Hon’ble NCLT in
the case of Bombay Stock Exchange
Limited v. Asahi Infrastructure & Projects
Limited10 a question arose of whether
listing fees charged by the BSE will be
considered as “operational debt” or
“regulatory dues”. The NCLT after
deliberations held that a listing fee
payable to a stock exchange regulated by
SEBI is a regulatory due and hence not to
be treated as an operational debt.
The Hon’ble NCLT while still referring to
BSE as an Operational Creditor observed
“…it must not be forgotten that the
10 CP No.1718/IBC/NCLT/MB/MAH/2017
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Operational Creditor being an entity
registered under SEBI is under an
obligation to follow the Regulations
prescribed by SEBI for recovery of its
dues. To this effect it is ascertained that
SEBI being a regulatory body of the
Operational Creditor, the dues above said
are not the ‘operational’ dues or
‘contractual’ dues. Rather they come
under the ambit of ‘Regulatory’ dues as
they can be recovered only under the set
guidelines prescribed by SEBI.”
The Tribunal had also relied upon the
Report of Insolvency Law Committee. In
the report there is a mention of stock
exchanges trying to receive their dues for
non-payment of listing fees. The
Committee was also of the view that dues
payable to stock exchanges should not
form a part of operational debt. The
report states that regulatory bodies such
as SEBI have a wide array of mechanism in
place to recover their dues, implying that
they should utilize those methods instead
of opting for the CIRP route as operational
creditors.
Through the aforementioned judgement it
is clear that the NCLT does not envisage
any dues payable to BSE or any other stock
exchange as an operational debt thereby
implying that such entities cannot be
operational creditors. However, the Ld.
Tribunal did not consider several aspects
including the fact that BSE Ltd. itself is a
listed Company and is in no way a
Regulatory Authority empowered by the
Government. It did not further consider
that BSE Ltd. is a for-profit organisation
and the Annual Listing Fees that were
sought to be recovered from Asahi
Infrastructure & Projects, would be
operational dues against providing the
service of listing of securities of the
Debtor on the Applicant’s Exchange.
In contrast to this, a three member bench
of the Hon’ble NCLAT, just a few days
later gave an order in Anju Agarwal vs.
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Bombay Stock Exchange and Ors.11. The
main issue in the case was whether a
period of moratorium would apply to
Regulatory Authorities. Section 28A was
again citied as being the guideline for
recovery in case of non-payment.
However, this time NCLT held that this
provision was in direct violation of the non
obstante clause in IBC under Section 238
which overrides any other provision in any
other statute. Therefore, NCLT held that a
moratorium would prevail. NCLT even
digressed from its previous judgment as
far as saying that since dues payable to
SEBI are statutory dues, it will be an
operational debt. “If penalty is imposed or
amount is payable to the 'Securities
Exchange Board of India' in such case, it
may claim as an 'Operational Creditor' but
cannot recover the same during the
'Resolution Process'.”
Therefore, there seems to be ambiguity in
the nature of what constitutes ‘regulatory
dues’ and whether they are operational
debt and if it is to be recovered through
the resolution process or through the
statute under which they fall.
VIII. SHARAD SANGHI VS. VANDANA
GARG AND ORS.
The NCLAT in Sharad Sanghi and Ors. v.
Vandana Garg and Ors.12 approved the
changing of votes of two financial
creditors subsequent to one of them
having abstained and the other dissented.
Before changing their vote, the vote share
was below the required (erstwhile) 75% at
61%. On changing the votes the vote share
in favour of the resolution Applicant went
up to 81% thereby approving the resolution
plan. The NCLT held that since the process
was completed within the stipulated 270
days and in favour of the resolution
11Company Appeal (AT) (Insolvency) No. 734 of 2018
12Company Appeal (AT) (Insolvency) Nos. 461, 464 and
548 of 2018
8

applicant (as opposed to not in favour) it
was well within their rights to do so.
To note that in the IBBI (Insolvency
Resolution Process for Corporate Persons)
(Third Amendment) Regulations, 2018,
dated 03.07.2018 (“CIRP Amendment”) the
Regulation 26(2) which read as “Once a
vote on a resolution is cast by a member
of the committee, such member shall not
be allowed to change it subsequently” was
omitted thereafter.
It is clearly the intention of the Board to
allow for a change in the opinion through
votes through this amendment so as to
allow for a majority of the creditors to
walk out of the resolution process with
some level of satisfaction. However, the
amendment does not clarify at what point
the vote can be changed. It would be
logical to assume that at any point before
the stipulated 270 days.
IX. TATA STEEL BSL LIMITED VS.
VARSHA AND BK SINHA
The operational creditor filed a summary
suit under Order XXXVII of the Code of
Civil Procedure against Tata Steel BSL
(formerly known as Bhushan Steel Ltd.) for
the recovery of dues. Post this SBI
initiated CIRP against Bhushan Steel. In
the Resolution Plan which was approved,
the Operational Creditors having pending
suits were given a nominal amount of Re.
1. The contention by the applicant is that
no suits can be entertained once CIRP has
been initiated. The court held that “Such a
dispute, which not only existed but stood
recognized as a sub judice claim for which
an inbuilt mechanism was incorporated in
the resolution plan, could not be
extinguished, merely because corporate
insolvency resolution process had been
undertaken.”
13[2017] 205 CompCas 23
14Quarterly Newsletter of Insolvency and Bankruptcy
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In the case of Innoventive Industries Ltd.
v. ICICI Bank and Anr13 while distinguishing
between initiation of corporate insolvency
process by financial creditors under
Section 7 of the IBC and insolvency
resolution process by operational creditors
under Section 8 of the IBC, it has been
held that when insolvency resolution is by
an operational creditor, the moment there
is existence of dispute, the operational
creditor gets out of clutches of the IBC.
The assumption here is that once the
amounts to be recovered gets crystallized
by the suit in the civil court, the same is
to be paid out of the funds allocated
towards operational creditors under the
Resolution Plan. (This was contended by
the operational creditor) In such a case is
it to also be assumed that for all recovery
of suits operational creditors who have
already instituted such suits would be paid
such crystallized amounts. It is unclear
whether the court would allow for
initiation of suits once the resolution plan
has been approved.
X. WITHDRAWAL OF APPLICATIONS
According to the data published by IBBI
towards the end of 2018,14 many CIRPs are
being disposed-off due to withdrawal
under S. 12A. Of the 586 cases resolved at
the end of December 2018, 63 cases were
actually withdrawn under Section 12A. By
comparison, resolution plans were
approved in only 79 cases.
Section 12 A of the IBC allows for the
withdrawal of the application admitted
under section 7, 9 and 10 of the Code by
the applicant on the condition that 90%
voting share of the CoC agrees in favour of
it. If such an application is filed by the
Resolution Professional before the
formation of the Committee of Creditors,
9

then withdrawal is permitted in the
absence of the requirement of approval
from the CoC. Regulation 30A of the CIRP
regulations further places a condition that
this may be done before issue of invitation
for expression of interest under regulation
36A.
The question of withdrawal of an
application for initiation of the CIRP came
up before the NCLT in Satyanarayan Malu
v SBM Paper Mills Limited wherein the
following two issues were deliberated
upon:
a) Whether a Corporate Debtor who has
filed a petition for initiation of CIRP
(through its Director) under Section
10 is entitled to withdraw the same
under Section 12A of the Code,
especially when an Expression of
Interest inviting resolution plans had
already been published?
b) Whether a resolution applicant who
has submitted a resolution plan which
has been approved by the Committee
of Creditors of the Corporate Debtor
can withdraw the same when the plan
is placed before the NCLT for
approval?
In the aforementioned case the Corporate
Debtor who had initially filed the
application under Section 10 himself,
sought to withdraw the application.
Simultaneously (or perhaps in response to
the withdrawal by the CD), the resolution
applicant too, post the approval of the
resolution plan by the CoC withdrew from
the process. The Hon’ble Tribunal ruled in
favour of the promoter/CD who in fact
offered a value 30% more than that
offered by the resolution applicant, which
worked perfectly in favour of the sole
creditor, Allahabad Bank. Despite this, a
fine of Rs. 5 lakhs was imposed on the
Promoter for withdrawing at such a late
stage. Furthermore, the NCLT ordered
that only half of the Rs 50 lakh in earnest
15
16
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money deposited by the resolution
applicant, be returned to it.
Evidently, withdrawal of the application
did not occur before issue of invitation for
expression of interest as envisaged under
the regulation 30A mentioned above.
However, the Hon’ble Supreme Court in
Brilliant Alloys Private Limited v Mr. S.
Rajagopal & Ors15 while also allowing
withdrawal much after invitation, opined –
“Regulation 30A has to be read along with
the main provision section 12A, which
contains no such condition. Hence, the
condition under regulation 30A can only be
considered as directory in nature
depending on the facts of each case.” It
must however, be borne in mind that
while arriving to such conclusion, the
court also opined that this principle has to
be construed in light of factual matrix of
each case.
XI. IBC VERSUS THE PREVENTION OF
MONEY LAUNDERING ACT, 2002
The IBC has also been at crossroads with
Prevention of Money Laundering Act, 2002
(“PMLA”).
In Sterling Sez Infrastructure Ltd. v.
Deputy Director, Directorate Of
16
Enforcement , the NCLT vide order dated
12.02.2019 held that attachment of
property by the Enforcement Directorate
under PMLA is null and void since the IBC
prevails over any other statute. It upheld
that as per section 14(1)(a) of the IBC, a
moratorium would be imposed on any kind
of proceedings. The Resolution
Professional was consequently ordered to
take charge of the attached property and
deal with it as required under the IBC. The
justifications given by the Hon’ble
Tribunal in upholding the overriding effect
of the IBC over the PMLA were manifold
including that the criminal proceedings
Special Leave to Appeal (C) No(s). 31557/2018
MA 1280/2018 in C.P 405/2018]
10

under PMLA would take too long and
thereby dilute the rights of the creditors.
It was observed that IBC would provide a
quicker resolution to the issue and the
quantum of amount locked in the assets of
the Corporate Debtor can be released at
the earliest. Section 238 of the Code was
also used to signify the supremacy of the
Code over any other statute. The bench
also considered Section 63 of the IBC
which provides that, no Civil Court or
Authority shall have jurisdiction to
entertain any suit or proceeding in respect
of any matter on which NCLT or NCLAT has
jurisdiction under IBC.
This point of view of the Hon’ble tribunal
is not shared by the Hon’ble High Court of
Delhi wherein the Hon’ble Court
adjudicated on 5 appeals by the
Enforcement Directorate arising from
similar matters among which The Deputy
Director Directorate Of Enforcement Delhi
v. Axis Bank17 was one. The Hon’ble Court
while holding that the PMLA overrides the
IBC where proceeds of crime have been
attached, also observed that debt
recovery statutes like RDBA, SARFAESI and
IBC must co-exist in harmony with PMLA.
The Hon’ble Court also observed that by
virtue of Section 71 of the PMLA, it has an
overriding effect over other existing laws
in the matter of dealing with "money-
laundering" and "proceeds of crime".
The order seeks to create some harmony
within the aforementioned statues, but
also brings out other points of contention.
In the attachment of property by the
Enforcement Directorate under PMLA, any
property which is not directly under the
scope of ‘proceeds of crime’ but has some
nexus with it may also be attached. In
such cases, the right of the creditors also
obviously gets diluted.
On the one hand, it may be argued that
the proceedings under IBC could be an
escape route for the corporate debtor
17 CRL.A. 143/2018
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from the clutches of the PLMA, but on the
other hand the converse can also be
argued. Under the IBC’s waterfall
mechanism the Government falls in the
last priority is receiving its dues.
Therefore, the overriding effect of the
PMLA would consequently be an escape
route for the Government in claiming its
dues.
Another aspect to be noted is that the
entire scheme of IBC pushes for a time
bound and speedy recovery of dues. This
process will get frustrated if the long,
dragged out process of PMLA is followed.
Hence, having the benefit of seeing the
Code in operation, the time is now ripe to
discuss and deliberate upon the manner of
functioning of the IBC, 2016 and the
concerns that need to be addressed while
going forward with the Code.
XII. TREATMENT OF AN OPERATIONAL
CREDITORS AND DISSENTING
FINANCIAL CREDITORS IN A
RESOLUTION PLAN
A. Treatment of operational creditors in
a resolution plan
An important discourse which has gained
forefront is the treatment of an
operational creditor in a resolution plan. It
has been noted in several matters that the
liquidation value assessed is significantly
subsidized for the claims of operational
creditor which is in stark contrast to the
valuation of dues of the financial creditor.
In the matter of Standard Chartered Bank
v. Satish Kumar Gupta, R.P. of Essar Steel
Ltd. & Ors., the Appellate Tribunal had
made certain observations which were
completely against the already settled
principles of law and also against settled
economic policies:
a) It is necessary to balance the
‘Financial Creditors’ and the
11

‘Operational Creditors’ while
emphasizing on maximization of
the assets of the ‘Corporate
Debtor’. Any ‘Resolution Plan’ if
shown to be discriminatory
against one or other ‘Financial
Creditor’ or the ‘Operational
Creditor’, such plan can be held
to be against the provisions of
the ‘I&B Code.
b) If the ‘Operational Creditors’
are ignored and provided with
‘liquidation value’ on the basis
of misplaced notion and
misreading of Section 30(2)(b)
of the ‘I&B Code’, then in such
case no creditor will supply the
goods or render services on
credit to any ‘Corporate
Debtor’. All those who will
supply goods and provide
services, will ask for advance
payment for such supply of
goods or to render services
which will be against the basic
principle of the ‘I&B Code’ and
will also affect the Indian
economy.
However, the IBC Amendment Bill, 2019 was
being introduced and subsequently enacted
to settle this particular issue. Nirmala
Sitharaman, in the Rajya Sabha, stated that
“the interpretation given by the NCLAT
(National Company Law Appellate Tribunal)
to the Essar Steel case by trying to treat
secured creditors and operational creditors at
par was defeating the purpose and the spirit
of the Act”. The Amendment of 2019
effectively gives the Committee of Creditors
of a loan defaulting company explicit
authority over the distribution of proceeds in
the resolution process. This has been done by
amending section 30(4) which now reads as:
“(4) The committee of creditors may approve
a resolution plan by a vote of not less than
[sixty-six] percent of voting share of the
financial creditors, after considering its
feasibility and viability the manner of
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distribution proposed, which may take into
account the order of priority and value of the
security interest of a secured creditor, and
such other requirements as may be specified
by the Board.”
This position of law has now been settled by
the Hon’ble Supreme Court in the matter of
CoC of Essar Steel v. Satish Kumar Gupta and
Ors. whereby the it has been held that
commercial wisdom of the CoC has to reign
supreme in the matters of feasibility and
viability of the resolution plan. Also, vide the
Amendment dated 05.09.2019 it has been
held that a resolution plan must allow for
payment to operational creditors which
should not be less than:
a) the amount to be paid to such
creditors in the event of a liquidation
of the corporate debtor under section
53; or
b) the amount that would have been
paid to such creditors, if the amount
to be distributed under the resolution
plan had been distributed in
accordance with the order of priority
in sub-section (1) of section 53,
whichever is higher.
Further, an ‘Explanation’ is inserted to clarify
that any distribution shall be 'fair and
equitable' to such creditors. Thus, the
Explanation clarifies that such distribution
shall be deemed to be in compliance with the
Supreme Court's decision in Swiss Ribbons v.
Union of India.
Whilst the concept of 'fair and equitable'
cannot be defined with mathematical
precision, the cue could have been taken
from foreign jurisdictions where the concept
of 'fair and equitable' treatment in insolvency
has been developed to mean:
1. Creditors who are in the same class
will receive similar treatment
amongst themselves.
2. A junior class of creditors will not
receive any payments unless and until
12

the senior classes above it have been
paid in full.
The judgment in CoC of Essar Steel (supra)
has clarified that the amendment actually
offers to operational creditors as well as
dissenting financial creditors something more
than what they were getting pre-amendment.
Of course, depending on the facts and
circumstances of each case, it may be so that
operational creditors and dissenting financial
creditors may end up getting nothing under a
plan, but that would still not mean that there
is a violation of the provisions because the
adjudicating authority would have ensured
adherence to Section 30(2) of the Code.
Having said that, it is certainly unfair to
operational creditors that in a possible
resolution plan to a corporate debtor, non-
payment of any dues in the resolution plan to
the operational creditor may actually result
in the operational creditor itself becoming
unviable. Looking at the cyclic nature of
receiving payments of operational creditors
who may be receiving a large chunk in such a
cycle, resolution applicants should make it a
point to satisfy operational claims as far as
possible.
XIII. STAGE OF CHALLENGE BY SHARE-
HOLDERS TO THE RESOLUTION
PLAN
Section 30(1) of the Code clearly states
that the resolution plan “shall be binding
on the corporate debtor and its
employees, members, creditors,
guarantors and other stake-holders
involved in the resolution plan.”
In such a situation, the only scope left for
the stakeholders to be heard for the first
time, is to prefer an appeal against the
order approving the resolution plan, on the
limited grounds available under Section
61(3) of the Code.
For share-holders, the position is quite
worse, in so far as, the rights conferred to
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them as a result of their share-holding
under the Companies Act, which may
stand to be adversely affected by the
Resolution Plan, may not even be
considered while approval of a resolution
plan. In Renaissance Steel India Pvt. Ltd. v
Electrosteel Steels Ltd., one of the
appeals preferred was by the Preference
share-holder whose ‘preference shares’ of
‘Bhushan Steel Limited’ had been
transferred unilaterally and for a fixed
consideration of Rs. 100/- as against INR
2269 crores without obtaining their
consent, by virtue of the Resolution Plan,
thus causing variation of the terms on
which they were issued and an automatic
redemption and cancellation of their
shares in violation of the provisions of
Section 55 of the Companies Act and Rule
9 of the Companies (Share Capital and
Debentures) Rules, 2014. In this case, the
NCLAT held:
“97. As per ‘I&B Code’, the shareholders
are not treated to be creditors. It is the
promoters/shareholders who are
responsible for initiation of ‘Corporate
Insolvency Resolution Process’ which
resulted due to nonpayment of dues of
the ‘Financial Creditor(s)’ and/or the
‘Operational Creditor(s)’, apart from
‘Secured Creditor(s)’ or ‘Unsecured
Creditor(s)’. Therefore, there is no scope
for argument left to the shareholders or
any party holding similar documents that
a sanction is required under one or other
provisions of law.
98. The ‘Resolution Plan’ automatically
does not amount to transfer or reduction
of shares, including preferential
shareholding. It is merely a proposal of
one or other ‘Resolution Applicants’ and
once it is approved by the ‘Committee of
Creditors’ and thereafter by the
‘Adjudicating Authority’ under Section 31,
will be binding on all the stakeholders,
including the ‘Corporate Debtor’,
‘Members’ (shareholders), ‘Financial
Creditors’, ‘Operational Creditors’ etc. If
13

the provision of Section 55 of the
Companies Act, 2013 is to be complied, it
can be complied only after the approval of
the ‘Resolution Plan’. Before the approval
of the ‘Resolution Plan’ is approved by the
Adjudicating Authority, the ‘Resolution
Plan’ being mere a proposal, the question
of following Section 55 of the Companies
Act, 2013 does not arise.
99. For the reasons aforesaid, we are not
inclined to interfere with the impugned
order dated 15th May, 2018.”
The effect of this judgment may stand to
give a free leash to the Resolution
applicant/CoC/RP to violate the rights of
shareholders on the ground that the RP is
merely a proposal and the mandatory
consent of the concerned stakeholder or
the sanction required in law can be
obtained after approval. Upon approval by
the Adjudicatory authority the Resolution
plan would then be binding on the
concerned stakeholder by virtue of Section
31(1) of IBC and his consent or sanction as
required in law would be rendered
meaningless. In view of the afore-
mentioned judgment, the mandate under
Section 30(2) of the IBC that the
Resolution plan cannot be in contravention
to any provision of law, may also be
rendered obtuse. The determination of the
issues raised in Renaissance Steel India
Pvt. Ltd. v Electrosteel Steels Ltd.18 are
presently pending before the Hon’ble
Supreme Court.
XIV. DETERMINATION OF THE SCOPE
AND THE RIGHTS OF
OPERATIONAL CREDITORS
The determination of the scope and the
rights of an operational creditor still raises
several issues, which remain unanswered.
For instance, an important issue with
respect to the scope of an operational
creditor which is still pending
18 [2018 SCC Online NCLAT 901]
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determination is- whether a person having
an operating lease agreement with the
Corporate Debtor constitutes an
“Operational Creditor”? In this regard,
several conflicting decisions have been
taken by the concerned NCLTs. NCLT,
Delhi in the case of Parmod Yadav and
Ors. v. Divine Infracon Pvt. Ltd19, has held
that the lease of an immovable property
cannot be considered as a supply of goods
or rendering of any services and, thus,
cannot fall within the definition of
“operational debt”. The Hon’ble NCLAT in
appeal, vide judgment dtd. 4.07.2018
passed in Company Appeal (AT)
(Insolvency) No. 251 of 2017, rejected the
claim on another issue, while leaving this
question open. Meanwhile, NCLT Chennai
in the case of Mahesh Madhavan v. M/s
Black N Green Mobile Solutions Pvt. Ltd.20
vide order dtd. 8.12.2017 and NCLT,
Kolkata in the case of Sarla Tantia v.
Nadia Health Care (P) Ltd.21 vide order
dated 05.10.2018 has allowed an
application filed under section 9 by the
lessor to initiate a CIRP.
It is noteworthy that, with respect to the
scope of operational creditors, the
Hon’ble Supreme Court recently in a
judgment dated 30 April 2019 passed in
the matter of JK Jute Mill Mazdoor Morcha
v Juggilal Kamlapat Jute Mills Company
Ltd22 has held that a Trade union would
constitute a “person” as defined in Section
3(23) of the Code and therefore, is
entitled to file an insolvency petition
under Section 9 of the Code as an
operational creditor.
XV. IMPACT OF A RESOLUTION PLAN
ON THE GUARANTOR’S RIGHTS OF
SUBROGATION AND RIGHT TO BE
INDEMNIFIED UNDER INDIAN
CONTRACT ACT
19 CP No. IB/209/ND/2017
20 (CP/ 625/ IB/2017)
21 [CP(IB) No. 108/KB/2018]
22 2019 SCC OnLine SC 619
14
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The Judgement passed by the Hon’ble on behalf of the Guarantor, inter-alia, on

Supreme Court in the case of SBI v V. the ground that security interests which
Ramakrishan23 has a significant impact on include the personal guarantees of the
contractual rights of a guarantor under guarantors had been reduced to 'nil' and
Section 133 of the Indian Contract Act therefore, the resolution plan was in
(right to subrogation). The Hon’ble contravention to the provisions of Sections
Supreme Court while holding that there is 133 and 140 of the Indian Contract Act.
no bar to proceed against the guarantors The findings of the NCLAT in this regard
of the Corporate Debtor and that the are that such personal guarantors who are
moratorium under Section 14 doesn’t also promoters are responsible for the
apply to realisation of dues from the present position of the Company and that
guarantor of the Judgment Debtor, also the legitimate dues of the creditors could
observed that:- be realised from the guarantees since the
same are independent contracts and the
“This Section (Section 31) only states that
liability of a guarantor is co-extensive.
once a Resolution Plan, as approved by the
Committee of Creditors, takes effect, it
Since, such a resolution plan would bind
shall be binding on the corporate debtor
the guarantor by virtue of Section 31(1),
as well as the guarantor. This is for the
the guarantor’s right to subrogation and to
reason that otherwise, under Section 133
indemnification under the Indian Contract
of the Indian Contract Act, 1872, any
Act automatically gets defeated.
change made to the debt owed by the
corporate debtor, without the surety's
Several important issues arise from the
consent, would relieve the guarantor from
present position in law with respect to
payment. Section 31(1), in fact, makes it
guarantors, some of which are mentioned
clear that the guarantor cannot escape
hereunder:
payment as the Resolution Plan, which has
been approved, may well include
a) Whether a Resolution Plan can also
provisions as to payments to be made by
provide for the creditors to realise
such guarantor. This is perhaps the reason
their dues from a guarantor who does
that Annexure VI(e) to Form 6 contained
not belong to the promoter group,
in the Rules and Regulation 36(2) referred
thus defeating the contractual rights
to above, require information as to
of such a guarantor?
personal guarantees that have been given
b) Whether the provisions of IBC, 2016
in relation to the debts of the corporate
override the provisions of Indian
debtor. Far from supporting the stand of
Contract Act?
the Respondents, it is clear that in point
c) Whether a resolution plan which
of fact, Section 31 is one more factor in
abrogates the rights of guarantors
favour of a personal guarantor having to
under Section 133 and Section 140 of
pay for debts due without any moratorium
the Indian Contract Act, would be in
applying to save him”
contravention to the provisions of law
and hence cannot be approved by
In another significant judgment dated 19th
virtue of Section 30(2) of the IBC?
December, 2018 in the matter of Lalit
d) Whether the Guarantor who has been
Mishra & Ors v. Sharon Bio Medicine Ltd.
mandated to make payments under
& Ors.24, the NCLAT refused to entertain
the Resolution Plan or whose security
the objection to the resolution plan filed
interest has been realised towards
dues, still avail its right to
23[2018 SCC OnLine SC 963] indemnification against the Corporate
24Judgment dated 19.12.2018 in Company appeal
Insolvency no. 164 of 2018

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Debtor, upon completion of the CIRP
Process?
In a recent decision in the matter of Ferro
Alloys Corporation Ltd. and Ors. v. Rural
Electrification Corporation Ltd. and
Ors.25, the NCLAT held that the creditor of
the principal debtor can also file an
insolvency petition against the Corporate
Guarantor. Now that the provisions for
initiating insolvency resolution against
personal guarantors of corporate debtors
have been notified, this is open to all
cases. Determination of these issues would
have an important impact on the rights
and liabilities of a guarantor of a
corporate debtor company, who is
undergoing CIRP Process. It may be noted
that in the recent judgment of the Hon’ble
Supreme Court in the matter of Essar Steel
India Limited, the Hon’ble Court has
consciously not remarked upon the rights
of guarantors for subrogation and has left
the question open as it was already sub-
judice.
XVI. CHALLENGES ARISING OUT OF
THE IMPLEMENTATION OF THE
SECOND AMENDMENT ACT. 2018
It is interesting to note that the provisions
of the Second amendment Act, 2018
wherein allottees under a real estate
project (home buyers) have been included
into the ambit of a financial creditor by
virtue of the “Explanation” added to
Section 5(8) of the IBC, are currently
under challenge before the Hon’ble
Supreme Court in SDS Infracon Pvt Ltd. v.
Union Of India26 along with other tagged
matters by several Infrastructure
Companies. Notice has been issued in
these matters vide Order dated 22.04.2019
and at present, there is a stay on further
proceedings before the NCLT in these
matters.
25 (2019 SCC OnLine NCLAT 84)
26 (Writ Petition (Civil) No. 492/2019)
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The determination of this challenge may
have to be considered keeping in mind the
judgment passed by the Hon’ble Supreme
Court in the Swiss Ribbons Case wherein
the Hon’ble Supreme Court rejected the
challenge under Art. 14 to treatment of
Financial creditors vis-à-vis operational
creditors and the voting rights assigned to
financial creditors. The test of intelligible
differentia had been carried out by the
Hon’ble Supreme Court based on the
nature of the loans as well as the ability of
financial creditors to assess viability and
restructure loans and to reorganise the
corporate debtor’s business. When seen in
this light it can hardly be said that home-
buyers either have the ability or
inclination to assess viability and
restructure loans and to reorganise the
corporate debtor’s business. Further,
considering Home-buyers as financial
creditors leads to a difficult situation
wherein obtaining 66% of the vote share
for consent to the resolution plan may
become a mammoth task.
Furthermore, the Second Amendment has
introduced Section 12A which provides for
another opportunity to the Corporate
Debtor company to settle its debts with its
debtors even after admission of an
insolvency petition by way of withdrawal
of a case by the concerned applicant with
the approval of 90% voting share of the
Committee of Creditors (CoC). However,
an important issue that requires
determination is what is the outer limit for
filing an application under 12A. The
Hon’ble Supreme Court vide judgment
dated 14.12.2018 passed in in the matter
of Brilliant Alloys Pvt. Ltd. v Mr. S.
Rajagopal & Ors.27 has declared that
Regulation 30A IBBI (Insolvency Resolution
Process for corporate Persons)
Regulations, 2016 [CIRP Regulations]
(which states that withdrawal cannot be
permitted after issue of invitation for
expression of interest) is directory and the
27 [2018 SCC OnLine SC 3154]
16

determination would have to be made
depending upon the facts of each case.
This has given rise to several concerns that
Section 12A may be used by the promoters
of the Company(who may otherwise be
disqualified under Section 29A) to defer
the payment of their liabilities till the
resolution applications are preferred, so as
they can belatedly settle dues at a much
subsidized rate only vis-à-vis the financial
creditors. Furthermore, without any
limitation being specified for an
Application u/s 12A, the entire CIRP
Process is rendered uncertain and this may
discourage interested resolution applicants
from participating in the process (which
may involve deposit of their earnest
money and other guarantees). For
instance, in the case of Satyanarayan Malu
v. SBM Paper Mills Ltd.28, in the Hon’ble
NCLT Mumbai vide order dated 20.12.2018
allowed an application for withdrawal
even at the belated stage when a
resolution plan was pending approval.
These challenges arising out of the Second
Amendment Act, 2018 are important
points of discourse, would have to be dealt
with, both on the judicial as well as on the
legislative side.
XVII. IMPACT OF PARALLEL
RESOLUTION PROCESSES CARRIED
OUT BY LENDERS
There is also an increasing tendency
amongst Banks to rely upon Section 12A
and the lack of a statutory bar, for
initiating both insolvency petitions, while
simultaneously carrying out restructuring
processes or process for sale of assets or
other resolution processes including
resolution processes under the SAMADHAN
scheme. These simultaneous processes
tend to effect not only the credibility of
banks but also effect third-party rights
that may be created and many a times,
28 (Company Petition (IB) No. 1362 (MB) of 2017)
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may ultimately back-fire on the Banks.
The back-firing of these parallel resolution
processes and out-of-court settlements
carried out by Lenders is, in fact, best
illustrated by the Reliance-Ericsson
Dispute, where the Financial Creditors
took a stand before the Hon'ble NCLAT
that they would prefer an out-of-the-court
restructuring and sale of assets process
rather than a CIRP Process against
Reliance Communications. Ultimately,
while the unsecured operational creditor
(Ericsson) walked away with 48% of
recovery of its claim, the out-of-court
restructuring and sale of assets process
preferred by financial creditors banks
(JLF) went bust, as the deal for sale of
assets by RCom to Reliance Jio failed.
XVIII. THE MANNER OF RESOLUTION OF
POTENTIAL CONFLICTS OF IBC
VIS-À-VIS OTHER LAWS IS
ANOTHER ASPECT THAT REMAINS
TO BE COMPLETELY EXAMINED
AND DETERMINED
It is yet to be seen as to how the CIRP
process under the Code would react to
other resolution processes such as
independent winding up proceedings under
the Companies Act or schemes for
arrangement under Section 230 of the
Companies Act or the implementation of
pre-existing BIFR schemes issued under
SICA.
Furthermore, certain other issues of
conflict vis-à-vis the IBC, 2016 and the
Companies Act as well as the Contract Act
have now come into the forefront. Some
of these issues which deserve further
examination are:
a) Whether the Resolution plan can
transfer and/ or redeem or cancel
share-holding, including that of
preferential shareholding in violation
of the provisions of Companies Act?
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b) Whether a Resolution Plan can PERSONAL GUARANTORS TO

impede upon the contractual right of CORPORATE DEBTORS)
subrogation and indemnification of a REGULATIONS, 2019
Guarantor?
It has been held by the Hon'ble Supreme
Court that even in the liquidation process,
efforts should be made to sell the
XIX. THE FATE OF THE ACCOUNTS company or the business as a going
COVERED UNDER THE RBI’S concern (See Swiss Ribbons Case). The
REVISED FRAMEWORK CIRCULAR Hon'ble NCLAT in several recent matters
has also allowed the creditors and
The landmark judgement recently passed members of a Corporate Debtor in
by the Hon’ble Supreme Court in the case liquidation to apply for a compromise or
of Dharani Sugars and Chemicals Ltd. v. arrangement under section 230 of
Union of India29 which declared Companies Act, 201330.
RBI’s 12th February 2018 Revised
Framework Circular, as ultra vires and The provisions of Section 12A can be put
non-est, has been termed as a “Potential to use thereafter to withdraw the
watershed moment in the Indian insolvency application. In view of the
insolvency regime” and has left many present position in law with respect to a
wondering about the fate of accounts Going Concern Sale, IBBI on 27th April,
covered under RBI’s revised framework 2019 has issued draft IBBI Liquidation
circular. Process (Amendment) Regulations, 2019 to
enable the liquidator, amongst other
things, to carry out a GCS. A perusal of the
XX. NEED TO IMPROVE THE same raises certain concerns regarding the
INFRASTRUCTURE FOR manner of GCS sale of packages of assets
INSOLVENCY RESOLUTION and liabilities as contemplated in the Draft
Regulations. A contingency in the event
Another significant concern is the the liabilities of the Corporate Debtor
immediate need to improve the exceed its assets may also have to be
infrastructure for Insolvency Resolution by provided for.
setting up circuit benches of the Hon’ble
NCLAT and increasing the proposed XXII. INSOLVENCY AND BANKRUPTCY
number of benches of NCLT as has also CODE (AMENDMENT) BILL, 2019
been directed by the Hon’ble Supreme
Court in the Swiss Ribbons Pvt. Ltd. case This Bill introduces eight amendments to
(supra). the IBC and the same was passed by the
Parliament on August 1, 2018. The
objective of this amendment is to plug the
holes that have emerged in the efficient
implementation of IBC. While moving the
bill for passage in Rajya Sabha, Nirmala
XXI. NEED TO ADDRESS THE ISSUES Sitharaman, Finance Minister, stated that
ARISING FROM THE DRAFT IBBI “There is a fear that probably the original
LIQUIDATION PROCESS
(AMENDMENT) REGULATIONS, 30[See S. C. Sekaran Vs. Amit Gupta & Ors. (Judgement
2019 AND THE DRAFT IBBI dated 22.02.2019 in Company Appeal (AT) (Insolvency)
No. 793 of 2018), Y. Shivram Prasad Vs. S. Dhanapal &
(BANKRUPTCY PROCESS FOR Ors. (Judgement dated 20.03.2019 in Company Appeal
(AT) (Insolvency) No.271 of 2019), Rasiklal S. Mardia Vs.
Amar Dye Chem Limited & Ors. (Judgement dated
29 [2019 SCC OnLine SC 460] 08.04.2019 in Company Appeal (AT) No.337 of 2018)].

Insolvency & Bankruptcy Code Conference 2019: Proposal for Sessions 18


intent with which this Parliament brought
Insolvency and Bankruptcy Code is
probably getting diluted. We should not
allow its dilution just for want of clarity.”
Further, the Finance Minister also stated
that the amendments were a response to
the aberrations that crept into the law’s
interpretation during the insolvency
resolution of Essar Steel Ltd. The two main
issues pertinent to the Essar Steel case are
the time taken for the entire CIRP process
as it has been going on for more than 700
days and the treatment of secured
creditors and operational creditors at par,
which according to the Finance Minister
defeats the purpose and the spirit of the
Act.
The following are the amendments
proposed to be introduced:
1) An Explanation has been inserted to
Section 5(26) which defines a
resolution plan. that This provides
that a resolution plan seeking the
insolvency resolution of corporate
debtor as a going concern may
include the provisions for corporate
restructuring, including by way of
merger, amalgamation and demerger.
This Explanation provides statutory
recognition to corporate
reorganisation as a result of a
resolution plan which may result in
the legal entity of the corporate
debtor ceasing to exist, the same was
earlier provided for in Regulation 37
of the CIRP Regulations. Therefore,
these reorganisation structures will
now not contravene the 'going
concern' requirement of the IBC and
may also enable reorganisation of
businesses through schemes for
better value maximisation.
2) The proposed amendment to section
Section 7(4) inserts a proviso which
states that if an application has not
been admitted or rejected within 14
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days by the Adjudicating Authority, it
shall provide the reasons in writing
for the same. This has been done to
put greater emphasis on the need for
a time-bound disposal at the
application stage.
3) In Section 12(3), provisos are
proposed to be inserted which state
that the insolvency resolution process
of a corporate debtor shall not
extend beyond 330 days from the
insolvency commencement date.
Such timeline will include the time
taken in legal proceedings, in order
to prevent undue delays in the
completion of the CIRP. If the CIRP is
not completed within the timelines,
then the corporate debtor will have
to be mandatorily liquidated. The
second proviso states that where
pending CIRP proceedings have
extended beyond 330 days, the same
will have to be completed within 90
days from the IBC Bill coming into
effect.
The implementation of this
amendment will be challenging
especially in cases where the
resolution plan itself has been
challenged. Further, the increasing
number of legal proceedings is
already putting pressure on the NCLT
and the NCLAT, thereby causing delay
in the time taken for disposal of
cases. The enhancement of the
strength of NCLT and NCLAT will
greatly assist in the process. The
Adjudicating Authorities should also
start imposing costs for frivolous legal
proceedings. The proposed
amendment, along with the decision
of the Supreme Court
in ArcelorMittal that states that
challenges in relation to decisions of
CoC or resolution professional in
respect of resolution plans can only
be made at the stage when an
application is filed under Section 31
19

of the IBC, may help in reducing the
timelines involved in CIRP. It has to
be noted, however, that the Hon’ble
Supreme Court in the matter of Essar
Steel has struck down the word
‘mandatorily’ from the amendment
relying on the maxim “actus curiae
neminem gravabit” meaning that no
act of court may harm a litigant. The
Supreme Court carved out certain
rare exceptional cases wherein the
adjudicating authority could extend
the timeline of the CIRP process
beyond 330 days but only when the
applicant is able to prove that time
was lost legitimately in litigation and
that there is a potential resolution
plan in place for the benefit of the
corporate debtor.
4) The IBC specifies that, in certain
cases, such as when the debt is owed
to a class of creditors beyond a
specified number, the financial
creditors will be represented on the
committee of creditors by an
authorised representative. These
representatives will vote on behalf of
the financial creditors as per
instructions received from them. The
proposed amendment to section 25A
states that such representative will
vote in accordance with the decision
taken by a vote of more than fifty
share of the voting share of the
financial creditors he represents, who
have cast their vote. Therefore, this
will smoothen the decision-making
process in cases where debenture-
holders, homebuyers or depositors
form the majority of the CoC.
5) As elucidated earlier, the Proposed
Amendment to Section 30(2) and (4)
effectively gives the Committee of
Creditors of a loan defaulting
company explicit authority over the
distribution of proceeds in the
resolution process. This has been
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done by amending section 30(4)
which now reads as:
“(4) The committee of creditors may
approve a resolution plan by a vote
of not less than [sixty-six] percent of
voting share of the financial
creditors, after considering its
feasibility and viability the manner
of distribution proposed, which may
take into account the order of
priority and value of the security
interest of a secured creditor, and
such other requirements as may be
specified by the Board.”
However, the IBC Bill also proposes
an amendment which provides that a
resolution plan must allow for a
payment to operational creditors.
This amount should not be less than:
a) the amount to be paid to such
creditors in the event of a
liquidation of the corporate
debtor under section 53; or
b) the amount that would have
been paid to such creditors, if
the amount to be distributed
under the resolution plan had
been distributed in accordance
with the order of priority in sub-
section (1) of section 53,
whichever is higher.
Further, an ‘Explanation’ is also
proposed to be inserted to clarify
that any distribution shall be 'fair and
equitable' to such creditors. Thus, the
Explanation clarifies that such
distribution shall be deemed to be in
compliance with the Supreme Court's
decision in Swiss Ribbons v. Union of
India. Whilst the concept of 'fair and
equitable' cannot be defined with
mathematical precision, the cue can
be taken from foreign jurisdictions
where the concept of 'fair and
equitable' treatment in insolvency has
been developed to mean:
a) Creditors who are in the same
class will receive similar
20

treatment amongst
themselves.
b) A junior class of creditors will
not receive any payments
unless and until the senior
classes above it have been
paid in full.
In the future, an Explanation can be
inserted to this so that the issue of
what constitutes 'fair and equitable'
treatment does not remain open for
interpretation. Further, these
amendments relating to payments to
creditors under a resolution plan shall
also be applicable to cases where the
application for approval of the
resolution plan is pending before the
Adjudicating Authority or where a
legal proceeding has been initiated in
any court against the decision of the
Adjudicating Authority in respect of a
resolution plan.
XXIII.
6) The Amendment to section 31(l) of
the Act states that once a resolution
plan has been approved by the
Adjudicating Authority, the same
shall be binding on all creditors
including the governmental, statutory
and local authorities to whom a debt
in respect of the payment of dues
arising under any law are owed. This
amendment will ensure that
Authorities respect the resolution
plan approved by the Adjudicating
Authority like other stakeholders of
the corporate debtor and will go a
long way to bringing about a closure
to the various proceedings (especially
tax proceedings) that are pending
against successful resolution
applicants. It may have also been
useful to clarify that no creditor can
pursue pre-CIRP claims after approval
of a resolution plan by the
Adjudicating Authority.
7) An Explanation has been added to
section 33(2) which provides that the
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CoC may take the decision to
liquidate the corporate debtor any
time after the constitution of the CoC
until the confirmation of the
resolution plan, including at any time
before the preparation of the
information memorandum.
8) An amendment has been made to
section 240(2)(w) which deals with
the matters on which regulations can
be made by the IBBI. The amended
section reads:
“Section 240(w): the manner of
making payment of insolvency
resolution process costs under clause
(a), the manner of repayment of
debts of operational creditors under
clause (b), and the other
requirements to which a resolution
plan shall conform to under clause
(d), of sub section (2) of section 30.”
INSOLVENCY RESOLUTION
AGAINST FINANCIAL SERVICE
PROVIDER
On 15 November 2019 DHFL (Dewan
Housing Finance Corporation) became
the first financial service firm to be
moved before the bankruptcy
Tribunal. This follows the new
powers given to the RBI by the Union
budget of 2019 wherein it can take
over administration of financial
service Companies. The debt of the
aforementioned DHFL is Rs. 83,873
crores. The relevant provisions
involved in this first of a kind process
are as under:
• Section 227 of the Code is the 'Power
of Central Government to notify
financial service providers, etc.' This
Section states that the Central
Government in consultation with the
"Financial Sector Regulator" can
notify "Financial Service Provider" or
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"Categories of Financial Service • Thus, vide this Notification,

Providers" for the purpose of their Corporate Insolvency Resolution
Insolvency proceedings to be proceedings can be initiated against
conducted in the manner prescribed "Non-Banking Finance Companies"
in the Code. including "Housing Finance
Companies" with asset size of 500
• Section 239 is an enabling section Crores or more under the provisions
which talks about the "Power to make of the Code, 2016 to be read along
Rules" to the Central Government with the FSP Rules by the appropriate
wherein there is a specific Sub- Regulator through Administrator.
section (2)(zk) empowering the
Central Government to make Rules in The Reserve Bank of India in the
the matter of proceedings prescribed capacity of an Appropriate Regulator
u/s.227 of the Code to formulate the is duly authorized under submit the
manner to conduct Insolvency & Application on behalf of RBI.
Liquidation Proceedings. Accordingly, the General Manager,
Department of Regulation moved an
• The Insolvency and Bankruptcy application for initiation of Corporate
(Insolvency and Liquidation Insolvency Resolution Process under
Proceedings of Financial Service Section 7 of the Insolvency and
Providers and Application to Bankruptcy Code, 2016 (“The Code”)
Adjudicating Authority) Rules, 2019, against DHFL. As part of the process
(“FSP Rules”) came to be notified. an 'Administrator' who was appointed
by the RBI was proposed to take over
• For the purpose of conducting this DHFL. The RBI named being Mr. R.
process an "Administrator" is to be Subramaniakumar, Thiruvanmiyur,
appointed respect of a Financial Tamil Nadu as the Adminstrator.
Service Provider undergoing RBI observed that a default had been
Corporate Insolvency Resolution committed by DHFL of significant
Proceedings as per the Code. amount in relation to Financial Debt
availed from various Financial
• To facilitate such Insolvency Creditors, in particular, State Bank of
proceedings an "Advisory Committee" India. The Central Government with
is formed by the "Regulator" RBI’s consultation had notified "NBFC"
and "Housing Finance Companies" in
• Through these Rule there are certain the category of "FSP". Thereafter the
modifications such as wherever the RBI, in accordance with such powers,
expression "Corporate Debtor" is used issued a Notification and superseded
in general in this Code, for the the board of directors of DHFL and
purpose of application of these Rules appointed the "Administrator", Mr. R.
it shall mean "Financial Service Subramaniakumar once the matter
Provider" and wherever the was filed. This was in exercise of its
expression "Insolvency Professional", powers under u/s.45 IE 5(a) of the RBI
"Interim Resolution Professional" Act 1934
"Resolution Professional" or Thereafter, a three member Advisory
"Liquidator" occur, now for the Committee was constituted to assist
application of these Rules, shall mean the Administrator, comprising of the
"Administrator". following persons:-
1. Dr Rajiv Lall, Non-Executive
Chairman, IDFC First Bank Ltd

Insolvency & Bankruptcy Code Conference 2019: Proposal for Sessions 22


2. Shri N.S. Kannan, Managing Director
and CEO, ICICI Prudential Life
Insurance Co. Ltd
3. Shri NS Venkatesh, Chief Executive,
Association of Mutual Funds in India.
The admission of an application u/s.7
of the Code has to be read with S.227
for initiation of proceedings against
an FSB. Further it is also required to
establish ‘debt’ as defined u/s. 3(11)
as well as to establish "Default" as
defined u/s. 3(12) of The Code. To
fulfill these conditions State Bank of
India had issued intimation to the
Reserve Bank of India with the
information of "Debt" owed to SBI
from DHFL with sufficient basis to
prove the existence of "Default" to
initiate Corporate Insolvency
Resolution Process against DHFL. In
the said intimation it was
communicated that SBI as a Financial
Creditor had granted several facilities
under various Loan Agreements.
SBI also informed regarding a 'Facility
Agreement' in respect of USD
110,000,000 signed between DHFL as
"Borrower" on one hand and State
Bank of India, Singapore Branch
("Agent") on the other hand. It was
also pointed out that DHFL had a long
list of "Secured Loans" outstanding to
nearly 25 banks, for a sanctioned
amount of Rs.6,144,344.48 (in Lakhs)
and outstanding amount of
Rs.3,920,074.00 (in Lakhs).
The Petition also included a Credit
Information Report of all the
borrowers having aggregate of fund
based and non-fund based exposure
submitted by Central Repository of
Information on Large Credits (CRILC),
along with Bankers' Books Evidence.
To conclude, the initiation of this
case is a milestone in corporate
insolvency proceedings against FSBs.
However, being the first of its kind
initiation of CIRP against a financial
service provider, undoubtedly this
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case will see its own slew of problems
crop up. Even with regard to
potential resolution applicants, a
completely separate approach will
necessarily have to be undertaken for
resolution considering that the
corporate debtor in this situation is
itself a ‘financial creditor’ of sorts.
Then again, this process will ensure
that funds of NBFCs are not mis-used
to the detriment of their creditors
and the scope of the IBC is further
extended with a view to serve the
interests of justice and public good.
XXIV. NOTIFIED PROVISIONS AGAINST
PERSONAL GUARANTORS OF
CORPORATE DEBTORS
Vide a gazette notification dated
15.11.2019, the Ministry of Corporate
Affairs notified that the provisions of
the Insolvency and Bankruptcy Code,
2016, in so far as they relate to
personal guarantors to corporate
debtors, shall come into force from
01.12.2019. Specifically it was
notified that the following clauses of
the Code shall be notified:
(1) clause (e) of section 2;
(2) section 78 (except with regard to
fresh start process) and section 79;
(3) sections 94 to 187 [both
inclusive];
(4) clause (g) to clause (i) of sub-
section (2) of section 239;
(5) clause (m) to clause (zc) of sub-
section (2) of section 239;
(6) clause (zn) to clause (zs) of sub-
section (2) of section 240; and
(7) section 249.
At this stage it is a welcome move as
it will allow creditors to move against
personal guarantors of corporate
debtors, who more often than not,
constitute the promoter group of the
corporate debtor. In pursuance of the
above notification, the Central
23

Government has also enacted various
Rules and Regulations with effect
from 01.12.2019 viz.
1. The Insolvency and Bankruptcy Board
of India (Insolvency Resolution
Process for Personal Guarantors to
Corporate Debtors) Regulations, 2019
("Insolvency Regulations");
2. The Insolvency and Bankruptcy
(Application to Adjudicating Authority
for Insolvency Resolution Process for
Personal Guarantors to Corporate
Debtors) Rules, 2019 ("Insolvency
Rules")
3. The Insolvency and Bankruptcy Board
of India (Bankruptcy Process for
Personal Guarantors to Corporate
Debtors) Regulations, 2019
("Bankruptcy Regulations")
4. The Insolvency and Bankruptcy
(Application to Adjudicating Authority
for Bankruptcy Process for Personal
Guarantors to Corporate Debtors)
Rules, 2019 ("Bankruptcy Rules");
It may be noted that such new
provisions have been notified, only
with respect to personal guarantors
of companies that are corporate
debtors, in the sense that
proceedings to initiate corporate
insolvency resolution process have
either been filed against such
companies or already admitted. Thus
if an individual is not a guarantor to a
corporate debtor, then the provisions
shall not be applicable to such a
guarantor. Another aspect to be
considered is the definition of
‘Guarantor’ under the notified
Insolvency Rules, which makes it
clear that the Code would be
applicable only where the guarantee
has been invoked by the creditor and
remains unpaid by the guarantor in
full or in part.
Going through the provisions of the
Code from Section 94 to 187, it can
be seen that a greater extent of the
process is very similar to that of
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petitions filed against companies
under Section 7 or Section 9 of the
Code, but with some very significant
differences.
ADJUDICATING AUTHORITY
As per Section 79(1) of the Code, the
Debt Recovery Tribunal has been
named as the Adjudicating Authority
for insolvency resolution and
bankruptcy of individuals. However,
another section 60 of the Code also
states that in case application/s for
initiating CIRP proceedings against
the corporate debtor are pending
before the NCLT, then in that case,
the insolvency/bankruptcy
proceedings against the personal
guarantor must be filed before the
same NCLT Bench. The provisions also
provide for transfer of any pending
liquidation or insolvency resolution
proceedings against the personal
guarantor to the relevant NCLT.
FILING OF APPLICATION
The personal guarantor himself or
through a resolution professional may
file an application for initiating
insolvency against himself, under
Section 94 of the Code. For a creditor
to file similar application, it will have
to be under Section 95 of the Code.
Similar to proceedings under Section
7 & 9, a creditor has to first issue
notice to the personal guarantor,
calling upon him to make payment of
the entire debt within 14 days of
receipt of such notice. On the failure
of the personal guarantor to clear the
dues, the creditor can then file an
application for initiation of insolvency
resolution.
INTERIM MORATORIUM
A major difference in insolvency
resolution against personal guarantors
is that an interim moratorium period
begins under Section 96, the moment
an application is file under Section 94
24

or 95 of the Code. As per Section 96,
any legal action or proceedings
pending in respect of any debt shall
deemed to have been stayed and that
the creditors of the debtor shall not
initiate any legal action or
proceedings with respect of any debt.
Such interim moratorium shall cease
to have effect when the adjudicating
authority admits the application
filed. One question that arises here
is the potential misuse of the
provision of interim-moratorium,
where moratorium is applied not on
adjudication but merely on an
application being filed. It is quite
possible that genuine personal
guarantors of a corporate debtor who
may be working towards the benefit
of the CIRP process, may be targeted
out of turn by any creditor of the
corporate debtor.
RESOLUTION PROFESSIONAL
In applications filed through a
Resolution Professional, within 7 days
the adjudication authority is to direct
the IBBI to confirm that there are no
disciplinary proceedings pending
against said Resolution Professional
and then confirm the appointment of
such Resolution Professional. In cases
where the application is filed by the
personal guarantor himself or by the
creditor himself, the adjudication
authority shall direct the IBBI to
nominate a suitable resolution
professional for appointment. The
provisions also clarify that the
resolution professional to be
appointed has to be someone who has
not been appointed the interim RP,
RP or liquidator of the corporate
debtor for whom the personal
guarantor had furnished guarantees.
In a change from conventional norms,
under these provisions, it is the
Resolution Professional who has to
examine the application under
Section 94 or 95 and prepare a report
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recommending approval or rejection
of such application, within 10 day of
his appointment. It remains to be
seen as to the effect of essentially
granting the power of adjudication to
a person who is not a judicial
authority. The 14-day timeline sees a
recurrence here with the adjudicating
authority required to either admitting
or rejecting the application under
Sections 94 /95 within 14 days of the
date of submission of report by the
appointed resolution professional.
MORATORIUM AND REPAYMENT
PLAN
On admission of the application,
moratorium comes into play and
apart from the condition under
interim-moratorium, the Code
additionally restricts and prevents
the personal guarantor from
transferring, alienating, encumbering
or disposing an of his assets or legal
rights or beneficial interests therein.
Within 7 days of admission, the
adjudicating authority is required to
issue a public notice and call for
claims from creditors of such personal
guarantor. The RP shall prepare a list
of creditors but there is no concept of
a committee of creditors, nor is there
a differentiation between financial
and operational creditors.
Being the best person to decide, the
provisions require the personal debtor
himself to prepare a repayment plan
in consultation with the RP. Such a
plan has to provide for, inter alia, the
implementation schedule, term of
schedule and source of funds. The
plan must also provide for transfer or
sale or all or part of the assets of the
guarantor along with the mode and
manner of such sale, satisfaction or
modification of any security interest,
reduction in amount payable to
creditors and modification as to the
terms of repayment. It may be noted
that in the repayment plan, the
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personal guarantor has to stipulate a inception, these provisions may need

minimum budget required for the amendments based on their practical
personal guarantor to cover his application. Therefore, one may have to
reasonable expenses and also of his analyse the impact of the fresh structures
immediate family members to the proposed under the new draft regulations,
extent they are dependent on him, on the existing CIRP mechanism and
provided that at the very least, 10% further analyse whether the new draft
of the realisable income of the regulations achieve their intended target.
personal guarantor is used for
repayment of debts. Once the
repayment plan is formulated, the
resolution professional has to submit
his report on the resolution plan
within 21 days of the last day of
submissions of claims by creditors, to
the adjudicating authority.
Taking the process forward the
creditors, in a meeting convened for
the purpose, vote on any
modifications, approval or rejection
of the plan, the threshold being 75%
value of the creditors. However, any
modifications suggested by the
creditors may be made only with the
consent of the debtor.
With regard to approval or rejection
of the Repayment Plan by the
Adjudicating Authority, it may pass
an order based on either a report of
the RP on the meeting of creditors, or
on the initial report of the RP on the
repayment plan itself. On approval of
the plan, the same shall take effect
and be binding on the creditors
mentioned in the repayment plan and
the personal guarantor himself. The
RP shall supervise the implementation
of the plan and is free to apply to the
adjudicating authority for directions,
if necessary. If the repayment plan is
not approved by the adjudicating
authority, the personal guarantor and
the creditors are entitled to file an
application for bankruptcy, however,
such a step is not mandatory or
inevitable unlike liquidation.

At this stage, the newly listed provisions

look well placed to address the concerns
of creditors but like with the Code at its

Insolvency & Bankruptcy Code Conference 2019: Proposal for Sessions 26