Legislation UpdatesRules & Regulations

On 14th June, 2022, Insolvency and Bankruptcy Board of India notifies Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2022. This regulation seeks to amend the procedure of recording evidences, and applications made to ‘resolution professional’ by the creditors. 

 

Key Points: 

  • For the purpose of resolving the process of insolvency, creditors may furnish the relevant records of transaction/debt/default by operational creditor. 
  • For making such applications, copies of Form GSTR-1 and GSTR-3B under GST and e-way bill will have to be provided. For the successful submission of these applications the Operational creditors will require their PAN and e-mail. 
  • Documents of debtors are part of major evaluation while assessing their insolvency, while doing so the resolution professional may go through his documents under Regulation 4(1). 
  • With newly added provision Regulation 4 (2) and (3), the debtors are bound by law to provide relevant information for such evaluation. Along with the management personnel of debtors, creditors will have to provide records of assets and liabilities stock statements, valuation reports, etc., of the debtor. 
  • In the process of preparing information memorandum of the corporate debtor, the resolution professional with require from the creditors, under Regulation 35-A, the financial health for auditing his assets and liabilities.  
  • To find out the fair value/liquidation value two valuers are allotted to evaluate the inventories and fixed assets of the debtor. Under the Resolution Plan of these Regulation, Regulation 35 (1)(b) has been modified. 
  • After this evaluation, when two ‘significantly different’ [defined under Explanation (ii)] estimates are submitted from valuers, third valuer for ‘asset class’ [defined under Explanation (i)] is appointed. Both the terms are clearly defined by this amendment. 

 


*Shubhi Srivastava, Editorial Assistant has reported this brief. 

Legal RoundUpTribunals/Regulatory Bodies/Commissions Monthly Roundup

Central Information Commission (CIC)


Framework of RTI Act restricts jurisdiction of CIC to provide a ruling on issues pertaining to access/right to information, not venture into merits of case

Neeraj Kumar Gupta (Information Commissioner), decides whether Commission can provide a ruling regarding the merits of a case or redressal of grievance.

Read more, here…

While examining the complaint, can CIC direct disclosure of information under S. 18 of RTI Act?

Neeraj Kumar Gupta (Information Commissioner) addressed a matter wherein it was alleged that the respondent intentionally provided an evasive reply by stating that the information sought was not clear, hence issue of prompt response of CPIO was raised.

Read more, here…


Customs, Excise and Services Tax Appellate Tribunal (CESTAT)


Will compensation paid by an employee to an employer for resigning from service without giving requisite notice, fall under taxable service? 

The Coram of S.K. Mohanty (Judicial Member) and P. Anjani Kumar (Technical Member) reiterated that, any compensation paid by the employee to the employer for resigning from the service without giving the requisite notice, would not be termed as consideration for the contract of employment and as such, would not fall within the preview of taxable service. 

Read more, here…

Cenvat Credit is allowed on Insurance services; Tribunal sets aside penalty and interest

Ramesh Nair (Judicial Member) partly allowed an appeal which raised the question as to whether the appellant was entitled to Cenvat credit in respect of Input Services namely construction services, fee for architectural structural works for factory plant building, group Medi-claim Insurance, Group personal accident insurance, insurance, motor car/vehicle insurance, labour charges for installation, testing & commissioning of components of VRV System (Centrally AC system) in the office building etc.

Read more, here…

Promotional activity for IPL not covered under ‘Business Auxillary Service’; Anil Kumble not liable to pay Service Tax

The Coram of P. Anjani Kumar (Technical Member) and P. Dinesha (Judicial Member) allowed appeals against the order of First Appellate Authority which upheld the demand of service tax by the adjudicating authority.

Read more, here…


Competition Commission of India (CCI)


 Conduct of Zomato and Swiggy, anti-competitive? DG to investigate

The Coram of Ashok Kumar Gupta (Chairperson) and Sangeeta Verma and Bhagwant Singh Bishnoi (Members) held that, in the case of both Swiggy and Zomato, prima facie there existed a conflict of interest situation, warranting detailed scrutiny into its impact on the overall competition between the RPs vis-à-vis the private brands/entities which the platforms may be incentivised to favour.

Read more, here…


Income Tax Appellate Tribunal (ITAT)


Income Tax penalty cannot be invoked without relevant documents substantiating business activities

The Coram of Shamim Yahya, Accountant Member and Narender Kumar Choudhary, Judicial Member, observed that under the Income Tax Act penalty can’t be invoked without relevant documents which substantiate business activities.

Read more, here…

Can mere rejection of the claim by Assessing Officer, make assessee liable for penalty?

Addressing the issue, of whether mere rejection of the claim by an Assessing Officer would ipso facto make assessee liable for the penaltythe Bench of G.S. Pannu (President) and Kul Bharat (Judicial Member) held that it won’t make the assessee liable to a penalty.

Read more, here…

Whether expenditure incurred on replacements of old truck bodies will be treated as revenue expenditure?

The Bench of Sonjoy Sarma (Judicial member) and Rajesh Kumar (Accountant Member) held that the expenditure incurred by the assessee as such on replacement of wooden body of trucks has to be allowed fully against the income of the assessee in the current year.

Read more, here…

Delayed payment of employee’s contribution to EPF/ESIC is not disallowable as amendments to S. 36(1) (va) and S. 43B effected by Finance Act, 2021 were applicable prospectively; appeal allowed

The Coram of Pradip Kumar Kedia (Accountant Member) and Narender Kumar Choudhry (Judicial Member) allowed an appeal which was filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals) -XXXVI, New Delhi passed by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961 concerning AY 2013-14. The instant appeal challenged the disallowance of Rs 45,60,061 on account of delayed payment of employee’s contribution towards EPF and ESIC.

Read more, here…

Whether gift received from HUF to any member of HUF is exempt from taxable income?

The Coram of Sanjay Garg (Judicial Member) and Annapurna Gupta (Accountant Member) examined the issue as to the taxability of the amount of gift received by the assessee from his ‘HUF’.

Read more, here…


Insolvency and Bankruptcy Board of India (IBBI)


Name and Designation of Officers of IBBI is exempted under S. 8(1)(j) of the RTI Act

“Section 8(1)(j) exempts information which relates to personal information, the disclosure of which has no relationship to any public activity or interest, or which would cause unwarranted invasion of the privacy of the individual unless a larger public interest justifies the disclosure of such information.”

Read more, here…


National Green Tribunal (NGT)


Fine of Rs 41.21 Crores imposed on a Government Corporation for excess mining and violation of conditions of Environmental Clearance: NGT issues 10 directions || If no fine, would rule of law be impacted? Read

While imposing a fine of Rs 41.21 crores on Singareni Collieries Company Limited, for violation of environmental clearance conditions and mining excess coal, the Coram of Justice K. Ramakrishnan (Judicial Member) and Dr Satyagopal Korlapati (Expert Member) expressed that,

“The Government Corporations are expected to be more law abiding and if any leniency or discrimination is shown for committing violation, then it is very difficult to maintain the rule of law, if any violations were committed by other persons. There will not be any moral right for the regulators to take action against others, if similar violations were committed by them.”

Read more, here…


National Consumer Disputes Redressal Commission (NCDRC)


If a person makes an investment in shares, will he be considered a Consumer under S. 2(1)(d) of Consumer Protection Act? NCDRC elaborates in view of ‘earning livelihood’

Viswanath, Presiding Member, held that the complainant was not investing money in the share market exclusively for earning his livelihood, hence the same was he did not fall under the definition of Consumer.

Read more, here…

[Medical Negligence] Consumer Protection Act should not be a halter round the neck

In an alleged medical negligence casethe Coram of R.K. Agrawal, President and Dr S.M. Kantikar, Member, reiterates that the “Consumer Protection Act should not be a halter round the neck.”

Read more, here…

“Negligence per se may be declared when …”: NCDRC explains in medical negligence case while awarding Rs 25 lakh compensation plus interest

While addressing a medical negligence case, the Coram of Dr S.M. Kantikar (Presiding Member) and Binoy Kumar, Member, observed that, Negligence per se is not a separate cause of action from negligence suits. Negligence per se, however, assumes the duty because of public policy or law.

Read more, here…

Due to burglary, customers lost their valuable articles from bank lockers. Will Bank be liable for deficiency in service?

The Coram of Justice R.K. Agarwal (President) and Dr S.M. Kantikar (Member) expressed that, customer avails of Locker hiring facility is so that they may rest assured that their assets are being properly taken care of, but in the present matter, OP Bank failed to take care of the assets.

Read more, here…

Sudden cancellation of rooms booked for daughter’s marriage 3 months prior on account of maintenance: Is it an acceptable reason? Can consumers claim compensation?

“The memories of marriage ceremonies are lifetime events in the life of bride and bridegroom and their family members to make their moments memorable. In our country, certainly, it is not an easy task for the parents to arrange their daughter’s marriage in a five-star hotel in place like Jaipur or any big cities. All of sudden cancellation of booking about 3 months prior to the date of marriage on account of maintenance is not acceptable reason.”

Read more, here…

After forceps delivery, patient developed 4th degree perineal tear losing chance for normal delivery: Will doctor be liable for medical negligence?

After forceps delivery, a woman lost her control over passing urine and stool due to the negligence of a doctor, the Coram of R.K. Agrawal (President) and Dr S.M. Kantikar (Member) upheld the decision of State Commission with respect to compensation of Rs 8 lakhs.

Read more, here…


National Company Law Tribunal (NCLAT)


Whether Homebuyer’s’ decision as a Class will be binding on every Homebuyer?

The Coram of Justice Ashok Bhushan (Chairperson) and Shreesha Merla (Technical Member) held that decision taken by the class of Homebuyers will be binding on all the homebuyers.

Read more, here…

Once insolvency proceedings are put on Stay, Can resolution professionals still be entitled to fees during Stay?

In a matter with regard to fees of resolution professional, the Coram of Justice Ashok Bhushan (Chairperson) and Shreesha Merla (Technical Member) held that, when proceedings in a matter are put to stay, the resolution professional is not entitled to fees during the stay on insolvency.

Read more, here…

Can territorial jurisdiction of NCLT be decided on basis of a Facility Agreement between parties?

The Coram of Justice Ashok Bhushan (Chairperson) and Shreesha Merla (Technical Member) held that, the territorial jurisdiction of NCLT to decide a case under Insolvency and Bankruptcy Code, 2016 cannot be taken away by the Facility Agreement between the parties.

Read more, here…

Whether fixation of salary of the MD is within the domain of IBC?

“There is no crystallised quantum of amount which can be claimed as salary/remuneration fixed by the Board of Directors as contemplated under Section 196 of the Companies Act, 2013.”

Read more, here…

Article 1 of Limitation Act deals with suits relating to accounts: NCLAT highlights scope of Art. 137 of Limitation Act

The Coram of Justice Ashok Bhushan (Chairperson) and Dr Alok Srivastava (Technical Member) observed that, provisions of the Limitation Act are applicable to proceedings under IBC.

Read more, here…

Jet Airways Resolution Plan’s implementation is subject to the outcome of?

The Coram of Justice Ashok Bhushan (Chairperson) and Shreesha Merla (Technical Member), held that the implementation of the Jet Airways Resolution Plan will be subject to the outcome of appeals filed against the order of National Company Law Tribunal which approved the resolution plan for Jet Airways.

Read more, here…


National Company Law Tribunal (NCLT)


Whether salary during notice period falls within definition of Operational Debt under IBC?

The Coram of H.V. Subba Rao, Judicial Member and Chandra Bhan Singh, Technical Member deliberated on what amounts to a pre-existing dispute.

Read more, here…


Securities Appellate Tribunal (SAT)


Insider Trading | SEBI’s restriction on Infosys employees for trading securities lifted by SAT: Read 5 reasons why SAT lifted restrictions

While lifting the restriction of buying or selling any securities, laid down by SEBI on employees of Infosys for allegedly violating the insider trading regulations, the Coram of Justice Tarun Agarwala (Presiding Officer) and Justice M.T. Joshi (Judicial Member) reiterated the settled law that burden of proof is always upon the prosecution, SEBI to prove that he had access to UPSI.

Read more, here…

Once a statute is repealed, will subordinate legislation made under statute ceases to have effect or can it be avoided by a saving clause?

“A statute after its repeal is completely obliterated as it had never been enacted. The effect is to destroy all inchoate rights and all causes of action that may have arisen under the repealed statute.”

Read more, here…

Logix Insolvent? NCLT initiates insolvency proceedings against Logix City Developers

The Coram of Bachu Venkat Balaram Das (Judicial Member) and Narender Kumar Bhola (Technical Member) initiates insolvency proceedings against Logix City Developers due to default in payment.

Read more, here…


Maharashtra Real Estate Appellate Tribunal


If change of promoter is left to wisdom of society, it will create chaos and uncontrollable situation leaving fate of flat purchasers in doldrum

The Coram of Indira Jain J., (Chairperson) and Dr K. Shivaji, Member (A), expressed that, if the change of promoter without following the procedure prescribed under the law is left to the wisdom of society, it will not only render the relevant provisions of revocation of registration redundant but also create chaos and uncontrollable situation leaving the fate of allottees /flat purchasers in doldrum.

Read more, here…

Case BriefsTribunals/Commissions/Regulatory Bodies

First Appellate Authority, Insolvency and Bankruptcy Board of India (IBBI): Santosh Kumar Shukla, First Appellate Authority, observed that the name and designation of Officers of IBBI as requested is exempted under Section 8(1)(j) of the RTI Act.

The appellant had filed the present appeal challenging the communication of the respondent regarding his RTI Application filed under the Right to Information Act, 2005 (RTI Act).

On perusal of the RTI Application, the appellant had requested certain information regarding the NCLT Order, Mumbai.

Further, the respondent had provided information on certain points and claimed exemption under Section 8(1)(j) of the RTI Act on points (b), (d) and (e). Aggrieved by the same, the appellant had filed the present appeal challenging the exemption taken by the respondent.

Analysis and Decision

The Bench stated that if the public authority holds any information in the form of data, statistics, abstracts, etc. an applicant can have access to the same under the RTI Act subject to exemptions under Section 8.

It was noted that the respondent did not give any reason or justification for invoking Section 8(1)(j) of the RTI Act.

Section 8(1)(j) exempts information which relates to personal information, the disclosure of which has no relationship to any public activity or interest, or which would cause unwarranted invasion of the privacy of the individual unless a larger public interest justifies the disclosure of such information.

Further, the Appellate Authority expressed that it deems it fit to deal with the request on merits in the interests of the right to information and scope of information disclosures under the RTI Act.

Appellant’s first contention was that the disclosure of the name and designation of the person who uploaded the order/Form A was not exempted under Section 8(1)(j).

With regard to the above, Authority observed that, if the information sought for is personal and has no relationship with any public activity or interest or it will not sub-serve larger public interest, the respondent is not legally obliged to provide that information.

Bench held that the name and designation of Officers of IBBI as requested is exempted under Section 8(1)(j) of the RTI Act. Further, the appellate authority was not satisfied with how a larger public interest was involved.

In the opinion of the Appellate Authority, the respondent was not bound to respond to such inquisitions under the RTI Act.

With respect to the above, the decision which was referred was, Dr D.V. Rao v. Yashwant Singh, wherein it was observed that:

“the RTI Act does not cast on the public authority any obligation to answer queries in which a petitioner attempts to elicit answers to his questions with prefixes, such as, ‘why’, ‘what’, ‘when’ and ‘whether’. The petitioner’s right extends only to seeking information as defined in section 2 (f) either by pinpointing the file, document, paper or record, etc., or by mentioning the type of information as may be available with the specified public authority.”

In view of the above, the appeal was disposed of. [Ishrat Ali v. CPIO, IBBI; decided on 17-5-2022]

 

Hot Off The PressNews

The IBBI Disciplinary Committee has issued an ex-parte interim order due to the urgency of the matter and suspended the registration of Mr Subrata Monindranath Maity as an Insolvency Professional.

Read the directions issued by IBBI, here: Interim Order


Background

The Central Bureau of Investigation had arrested Subrata Monindranath Maity regarding the demand for the undue advantage of Rs 20,00,000/-.

On perusal of the FIR against the Insolvency Professional, it was observed that the allegations were serious in nature leading to contravention of multiple provisions of the Code including Section 208(2)(a) of the Insolvency and Bankruptcy Code,2016 (the Code) read with regulations 7(2)(a), 7(2)(b), 7(2)(h) and 7(2)(i) of the IBBI (Insolvency Professionals) Regulations, 2016 and clauses 1, 2, 3, 5, 9, 12, 14, 17, 24 and 28 of the Code of Conduct specified thereunder.

The above-said raised serious questions about him being ‘fit and proper’ to continue as an IP.

His arrest is bound to hamper the ongoing processes being handled by him, and therefore would jeopardise the interest of concerned stakeholders.


Insolvency and Bankruptcy Code of India

[Notification No. IBBI/DC/95(Interim)/2022]

[Interm Order dt. 9-5-2022]

Akaant MittalExperts Corner

The Insolvency and Bankruptcy Board of India (IBBI) recently amended the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 vide IBBI (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2021. The same is enacted pursuant to the discussion paper (“IBBI discussion paper”) circulated by the IBBI soliciting feedback on its proposals. The latest set of amendments[1] to the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) proposes some very critical changes with respect to the flow of a CIRP and its regulation. Most importantly, it proposes a code of conduct regulating the Committee of Creditors (CoC).[2] Further, it introduces challenge method as an option for the resolution professional to call resolution plans.[3] Amongst these, there are alterations that seek to ensure strict adherence to the timeline of the CIRP to ensure time boundedness.

 


A. Deconstructing the Amendments


The first amendment has been made in Regulation 17 by inserting the sub-regulation (1-A) after sub-regulation (1) to it.

The said Amendment read as follows:

Regulation 17(1-A) The committee and members of the committee shall discharge functions and exercise powers under the Code and these regulations in respect of the corporate insolvency resolution process in compliance with the guidelines as may be issued by the Board.[4]

 

The IBBI is yet to issue any recommendations. However, the guidelines that could be released by the IBBI are expected to lay out the principles provided in the annexure of the IBBI discussion paper[5] which are as follows:

  1. A member of the Committee of Creditors, while discharging its duties shall abide by the following code of conduct, as an individual and jointly with other members of the committee.
  2. A member of the committee shall, amongst other guidelines:

(a) Maintain integrity in performing its roles and functions under the Code.

(b) Must not misrepresent any facts or situations and should refrain from being involved in any  action that is detrimental to the objectives of the Code.

(c) Must maintain objectivity in exercising decisions on the subject-matter bestowed to the  committee under the Code.

(d) Must disclose the details of any conflict of interests to the stakeholders, whenever it comes across such conflict of interest during a process.

(e) Not acquire, directly or indirectly, any of the assets of the debtor, nor knowingly permit any relative of the committee member to do so, without making a disclosure to the stakeholders.

(f) Not adopt any illegal or improper means to achieve any objective.

(g) Cooperate with the insolvency professional in discharging his duties under the Code.

(h) Not influence the decision or the work of committee so as to make undue gain or advantage for itself or its related parties.

(i) Disclose the existence of any pecuniary or personal relationship with any stakeholders entitled to distribution, as soon as it becomes aware of it.

(j) Ensure that decisions are made without any bias, favour, fear, coercion, undue influence or conflict of interest.

(k) Maintain transparency in all activities and decision making.[6]

 

In order to understand why IBBI brought these guidelines, one may look to the Parliamentary Standing Committee Report which made recommendations to have a professional code of conduct for CoC, which will define and circumscribe their decisions and also recommended the IBBI to frame guidelines for the selection of RPs by the CoC in a more transparent manner.[7]

 

The 2nd amendment is to ensure that the process of resolution is timely executed. Prior to the amendment, Regulation 36-A of the CIRP Regulations contained provision regarding the invitation for expression of interest (EoI). The said invitation is to contain details regarding the criteria for prospective resolution applicants and also provide such basic information about the corporate debtor as may be required by a prospective resolution applicant for expression of interest, amongst other guidelines. However, there is no stipulation on how many times this invitation could be amended.

 

Similarly, Regulation 36-B of the CIRP Regulations contained provision regarding the request for resolution plans. It provided for a minimum of 30 days for prospective resolution applicants to submit the plans and allows for revision/modification of the request for resolution plan (RFRP) subject to the 30 days timeline but there was no cap on the number of revisions that may be allowed in a resolution plan.

The same was found by the IBBI to afflict the resolution process with delay.

Resultantly, the amendment adds clause (4-A) to Regulation 36-A and a proviso to Regulation 36-B(5), which stipulate:

 

Regulation 36-A (4-A)— Any modification in the invitation for expression of interest may be made in the manner as the initial invitation for expression of interest was made:

Provided that such modification shall not be made more than once.

Regulation 36-B (5)— Any modification in the request for resolution plan or the evaluation matrix issued under sub-regulation (1), shall be deemed to be a fresh issue and shall be subject to timeline under sub-regulation (3).

Provided that such modifications shall not be made more than once.

The 3rd amendment was with respect to the instances where the resolution applicants revise the resolution plans multiple times, with or without the consent of the CoC, leading to delays in completing the process.

 

To this, the Committee suggested a Swiss challenge method, wherein once a bid from one bidder is received and approved, then the floor is opened to the challenger. If the original bidder agrees to match the offer given by the challenging bidder in its own proposal, then bid is awarded to him, else it is awarded to the challenging bidder.

 

To this effect, sub-clause (1-A) is added to Regulation 39, which stipulates:

39A (1-A) – The resolution professional may, if envisaged in the request for resolution plan

(a) allow modification of the resolution plan received under sub-regulation (1), but not more than once; or

(b) use a challenge mechanism to enable resolution applicants to improve their plans.

(1-B) The Committee shall not consider any resolution plan—

(a) received after the time as specified by the committee under Regulation 36-B; or

(b) received from a person who does not appear in the final list of prospective resolution applicants; or

(c) does not comply with the provisions of sub-section (2) of Section 30 and sub-regulation (1).

 

Regulation 39-A(1-A)(b) expressly crystallises the swiss challenge mechanism into the resolution process under the IB Code. It must be noted here that Regulation 39-A earlier did not contain any prohibition on the usage of swiss challenge method during the CIRP process.[8]

 

Furthermore, the amendment also put an embargo on the CoC from considering resolution plans that are: (1) received after a certain time; or (2) received from persons who are not part of the final list of prospective resolution applicants; and (3) not compliant with Section 30 of the Insolvency and Bankruptcy Code, 2016.


B. Broader Issues with the Amendment


Now that the salient features of the amendment are discussed, and before we proceed with the brief analysis, it is important to understand what powers does the CoC enjoy and why there is a need felt for bringing a code of conduct.

Need to balance the “commercial wisdom of the CoC” with the absoluteness of power

 

The IB Code is designed so that those stakeholders who have the biggest stake, at the same time possess the financial expertise to resolve insolvency resolution, play the prominent role. It is in furtherance of this objective that the judicial interference of the NCLT, NCLAT and the Supreme Court is sought to be minimum and majority of the decisions taken by the CoC are held to be non-justiciable.

 

For instance, the CoC enjoys complete autonomy in the following matters:

(i) who to appoint as the RP;

(ii) replace the RP;

(iii) direct liquidation of the corporate debtor whenever it wants;

(iv) negotiate with the bidders and seek revisions of the bids;

(v) specify the criteria for prospective resolution applicants when inviting expression of interests; and

(vi) seek extension of the time period of resolution process.

In such matters, the decision of the CoC is beyond the purview of judicial interference.

 

The Supreme Court through various judicial pronouncements have clarified the role and responsibilities of the CoC and established the primacy of “commercial wisdom of CoC” in deciding the fate of the corporate debtor undergoing CIRP.[9] As a result, the Supreme Court has consistently acknowledged the relevance of the CoC and relies on the commercial wisdom of the CoC.

 

Now with the adoption of a code of conduct, the expansive scope of power available to the CoC stands to get circumscribed. The avoidable experiences borne during the working of the IB Code, such as the following, are the reasons why the code of conduct was felt necessary:

(i) When the CoC, usurping the role of the RP, on its own, adjudicated on if a creditor is a financial or an operational creditor.

(ii) When the decision-making by the CoC members is riddled with red tapism, so much so that in an instance the CoC did not approve appointment of IRP as RP since two of the four financial creditors, having aggregate voting rights of 77.97% required internal approvals from their competent authorities.

(iii) When a financial creditor decided to engage an entity for services during CIRP. It proposed the name of an IP for appointment as IRP in the application, after having an understanding with him that on his appointment as the IRP, he shall appoint that entity. The IRP appointed the said entity on the date of commencement of CIRP. The fee of entity was 20 times of the fee of the IRP/RP.

(iv) When the lead FC recovered debt during moratorium from the company’s account it was maintaining. In liquidation, even when the company was a going concern and a scheme under Section 230 of the Companies Act, 2013 was under consideration, and despite instruction to contrary from the NCLT, the liquidator distributed Rs 26 crore to FCs under their pressure.

 

Clearly, the above-mentioned instances are outside the ambit of the IB Code and could not be saved from the broad ambit of the commercial wisdom of the CoC.

 

Now the fundamental concerns with respect to these amendments seem to not stem from the objective sought to be achieved, but they seem rather focused on the effect that these amendments could directly (or indirectly) end up bringing about to the insolvency process.

 

(a) Lack of enforcement mechanism

It is unclear on how the breach of the guidelines by any member of the CoC would be addressed. The well-known latin maxim ubi jus, ibi remedium encapsulates the dilemma, which essentially means that where there is a right, there is a remedy. In other words, it postulates that where the law has established a right there should be a corresponding remedy for its breach.

 

In a situation, if any member of the Committee of breaches any of the guidelines, it is unclear that what would be the impact of such breach. In other words, the grey area is whether such breach will just impact that particular member of the CoC or the CoC (and the resolution process) as a whole.

 

The same is to be kept in juxtaposition with one of the primary objectives behind the present amendment, which is a speedy and timely conduct of the resolution process. If the breach of the guidelines results in more judicial intervention and justiciability, then the model timelines in the conduct of a CIRP may become more difficult to achieve.

 

It must also be noted that the CoC has been given a long rope by the judicial authorities, so much so that even when the CoC entertains late bids,[10] or approves a resolution plan while being aware of the fact that the workers were seeking for the revival of certain production units of the debtor but the plan itself stipulates the closure of these units; in such instances the judicial authorities had held that the adjudicating authority would still have to go by the commercial wisdom of Committee of Creditors.[11]

 

Therefore, the Board would have to work out these aspects in consultation with the stakeholders before issuing any guidelines and the accompanying mechanism for its enforcement.

 

(b) Vague and open-ended provisions.

A provision must not be so vague, and overbroad that no reasonable standards are laid down and no clear guidance could be gauged.

 

The Supreme Court in Shreya Singhal v. Union of India,[12] applied the doctrines of vagueness, overbreadth, and chilling effect to strike down Section 66-A of the IT Act, reasoning that the impugned provision of Section 66-A “is cast so widely that virtually any opinion on any subject would be covered by it, as any serious opinion dissenting with the mores of the day would be caught within its net. Such is the reach of the section and if it is to withstand the test of constitutionality, the chilling effect on free speech would be total … therefore, [it would] have to be struck down on the ground of overbreadth”.

 

The proposed Code of Conduct in the discussion paper contains some very vague and open-ended obligations for the members of the CoC. For instance, it requires the CoC (i) to cooperate with the insolvency professional in discharging his duties under the Code; or (ii) maintain objectivity in exercising decisions on the subject-matter bestowed to the Committee under the Code; or (iii) ensure that decisions are made without any bias, favour, fear, coercion, undue influence or conflict of interest; or (iv) bear the collective interest of all stakeholders in mind in all activities and decision-making.

 

Such generic provisions may become a cause for major concern, where the conflict between the commercial wisdom of the CoC with these guidelines could give rise to challenges against an approved resolution plan. Currently, there are instances where objections have been raised against the approved resolution plan on the grounds that

 

(a) the approved plan had reserved a portion of the assets of the corporate debtor (in the present case, the same were the preference shares held by subsidiary of the corporate debtor) for distribution amongst the financial creditors alone;[13] or

(b) while the CoC had persuaded the successful resolution applicant to increase the worth of the resolution plan to the extent of Rs 235.86 crores (from the previous amount of Rs 217.98 crores) but in the process, it had allowed the portion of the claim payable to the operational creditors to be reduced from Rs 1.64 crores to Rs 0.50 crores.[14]

 

In such instances, the courts have at the altar of commercial wisdom of the CoC and quantitative; still refused to intervene.

 

The past experience tells us that most of the unsuccessful resolution applicants challenge the validity of the CIRP on one ground or the other. Thus, if a guideline with such broad obligations is issued by the IBBI, then it will provide the unsuccessful resolution applicants, or even other creditors with additional causes of action for challenging the approved resolution plans. The biggest concern with respect to this is that it will cause further delay in the completion of CIRP, in turn causing further deterioration of the value of assets of the corporate debtors.

 

(c)The limited opportunities to revise plans

In a scenario post COVID, successful resolution applicants may not be financially as sound as they used to, the limit on the applicants in modifying the plans. Furthermore, the amendment disallows the CoC from considering resolution plans that are received after a certain time. There are instances, where late bids have been considered,[15] and even approved[16] by the CoC in the interests of maximising the assets of the corporate debtor, which has even been upheld by the Supreme Court.

 

It remains to be seen on whether the same will be directory or mandatory.


Conclusion


The amendments certainly are based out of the pressing need to address the loopholes in a resolution process and learn from the avoidable experiences borne during these many years of the operation of the IB Code. However, despite the well-intended objective of checking the arbitrary powers of the CoC and promote a quicker resolution mechanism, the guidelines may require certain tailoring and at certain places, an enforceable mechanism.

 

 


† Akaant Kumar Mittal is an advocate at the Constitutional Courts, and National Company Law Tribunal, Delhi and Chandigarh. He is also a visiting faculty at the National Law University, Mumbai and the author of the commentary Insolvency and Bankruptcy Code – Law and Practice.

The author gratefully acknowledges the research and assistance of Sh Mahesh Kumar, 4th Year, BA LLB (Hons.), student at Sharda University, Greater Noida, Uttar Pradesh; Ms Jyotshna Yashaswi and Prince Chandak in writing this article.

[1] Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2021, Notification No. IBBI/2021-22/GN/REG078, dated 30-9-2021 (w.e.f. 30-09-2021) Read HERE.

[2] Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2021, S. 2, HERE.

[3] Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2021, S. 5, HERE.

[4] Id., Regn. 17(1-A).

[5] Insolvency and Bankruptcy Board of India Discussion paper published on 27-8-2021, accessible HERE.

[6] Id., Annexure.

[7] 32nd Report of the Parliamentary Standing Committee on Finance in 17th Lok Sabha, titled “Implementation of Insolvency and Bankruptcy Code – Pitfalls and Solutions”, published in August 2021, Part II, para 3, accessible HERE .

[8] Ngaitlang Dhar v. Panna Pragati Infrastructure (P) Ltd., 2021 SCC OnLine SC 1276.

[9]  See K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150 : (2019) 4 SCC (Civ) 222; Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17; Essar Steel India Ltd. v. Satish Kumar Gupta, (2020) 8 SCC 531 : 2019 SCC OnLine SC 1478.

[10] See Kalpraj Dharamshi v. Kotak Investment Advisors Ltd., (2021) 10 SCC 401.

[11] Santosh Wasantrao Walokar v. Vijay Kumar V. Iyer,  2020 SCC OnLine NCLAT 128.

[12] (2015) 5 SCC 1.

[13] Pratap Technocrats (P) Ltd. v. Monitoring Committee of Reliance Infratel Ltd., (2021) 10 SCC 623 : 2021 SCC OnLine SC 569.

[14] Power2SME (P) Ltd. v. Allied Strips Ltd., 2020 SCC OnLine NCLAT 1056.

[15] See IMR Metallurgical Resources AG v. Ferro Alloys Corpn. Ltd., (2020) 220 Comp Cas 528.

[16] See Kalpraj Dharamshi v. Kotak Investment Advisors Ltd., (2021) 10 SCC 401.

Legislation UpdatesRules & Regulations

The Insolvency and Bankruptcy Board of India made Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons)(Third Amendment) Regulations, 2021 to amend the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Key Amendments:

In the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016

  • In regulation 17, the following subregulation shall be inserted:

“(1A) The committee and members of the committee shall discharge functions and exercise powers under the Code and these regulations in respect of corporate insolvency resolution process in compliance with the guidelines as may be issued by the Board.”.

  • In regulation 36A, the following subregulation shall be inserted:
    “(4A) Any modification in the invitation for expression of interest may be made in the manner as the initial invitation for expression of interest was made:

    Provided that such modification shall not be made more than once.”.


  • In regulation 39, for subregulation (1A), the following subregulations shall be substituted:
    “(1A) The resolution professional may, if envisaged in the request for resolution plan
    (a) allow modification of the resolution plan received under subregulation (1), but not more than once; or (b) use a challenge mechanism to enable resolution applicants to improve their plans. (1B) The committee shall not consider any resolution plan (a) received after the time as specified by the committee under regulation 36B; or (b) received from a person who does not appear in the final list of prospective resolution applicants; or (c) does not comply with the provisions of subsection (2) of section 30 and subregulation (1).”.
Legislation UpdatesRules & Regulations

Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) (Amendment) Regulations, 2021

2. In the Insolvency and Bankruptcy Board of India (Model Bye-Laws and Governing Board of Insolvency Professional Agencies) Regulations, 2016 (hereinafter referred to as the principal regulations), in regulation 5,—

(i) after sub-regulation (4), the following sub-regulation shall be inserted, namely:—

“(4A) A shareholder director shall be an individual, who satisfies the eligibility norms, including experience and qualification, as decided by the Governing Board.”;

(ii) in sub-regulation (6), for clause (b), the following clause shall be substituted, namely:—

“(b) who has expertise in the field of finance, law, economics, accountancy, valuation, management or insolvency;”;

(iii) after sub-regulation (13), the following sub-regulations shall be inserted, namely:—

“(14) A director shall disclose any order of any authority that affects his character or reputation, to the insolvency professional agency, within one week of issue of such order:

Provided that a copy of the order shall be placed forthwith on the website of the insolvency professional agency;

Provided further that such director shall forthwith cease to be a director of the insolvency professional agency where the order disqualifies him to be a director of a company.”.

3. In the principal regulations, after regulation 5B, the following regulations shall be inserted, namely:-

6. Self-evaluation.

(1) The Governing Board shall evaluate its performance in a financial year within three months of the closure of the year, in the manner decided by it.

(2) The insolvency professional agency shall publish a report on self-evaluation referred to in sub-regulation (1) on its website.

Compliance Officer.

(1) An insolvency professional agency shall designate or appoint a compliance officer who shall be responsible for ensuring compliance with the provisions of the Code and regulations, circulars, guidelines, and directions issued thereunder.

(2) The compliance officer shall, immediately and independently, report to the Board any non-compliance of the provisions referred to in sub-regulation (1).

(3) The compliance officer shall submit a compliance certificate to the Board annually, verifying that the insolvency professional agency has complied with the provisions referred to in sub-regulation (1):

Provided that the annual compliance certificate shall also be signed by the managing director of the insolvency professional agency.

The Governing Board shall appoint or remove the compliance officer only by means of a resolution passed in its meeting”


Insolvency and Bankruptcy Board of India

[Notification dt. 14-01-2021]

Legislation UpdatesRules & Regulations

The Insolvency and Bankruptcy Board of India (IBBI) notified the following Amendment Regulations, 2020:

(a) the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Fifth Amendment) Regulations, 2016

(b) the Insolvency and Bankruptcy Board of India (Liquidation Process) (Fourth Amendment) Regulations, 2020

(c) the Insolvency and Bankruptcy Board of India (Information Utilities) (Amendment) Regulations, 2020

2. The Insolvency and Bankruptcy Code, 2016 (Code) enables a financial creditor (FC), among others, to initiate corporate insolvency resolution process (CIRP) against a corporate debtor (CD). The FC, along with the application, is required to furnish “record of the default recorded with the information utility or such other record or evidence of default as may be specified”. In exercise of this power, the IBBI amended the Regulations to specify two ‘other record or evidence of default’, namely, (a) certified copy of entries in the relevant account in the bankers’ book, and (b) order of a court or tribunal that has adjudicated upon the non-payment of a debt.

3. The Code defines financial information to mean certain records and ‘such other information as may be specified’. In exercise of this power, the IBBI amended the Regulations to specify public announcement made under the Code as financial information. It mandated the Information Utilities to disseminate the public announcement to its registered users, who are creditors of the CD undergoing insolvency proceeding. This is in addition to publishing the public announcement in the newspapers and websites as required in the Regulations.

4. The Regulations provide that the Interim Resolution Professional (IRP) / Resolution Professional (RP) shall verify every claim and thereupon maintain a list of creditors and update it. He is required to file the list of creditors with the Adjudicating Authority (AA) and display it on the website, if any, of the CD. The IBBI amended the Regulations to require the IRP/RP to submit the list of creditors on an electronic platform for dissemination on its website. This will improve transparency and enable stakeholders to ascertain the details of their claims at a central place.

5. The resolution plan usually provides payment of debts to the creditors of the CD. In the interest of transparency, the IBBI amended the Regulations to require the RP to intimate each claimant the principle or formulae for payment of debts under a resolution plan, within 15 days of the order of the AA approving such resolution plan.

6. The Code envisages early closure of the liquidation process so that the assets of the CD are released for alternate uses expeditiously. However, the process takes longer where the liquidation estate includes a ‘not readily realisable asset’. To facilitate quick closure of the liquidation process, the IBBI amended the Regulations to enable the liquidator to assign or transfer a ‘not readily realisable asset’ to any person in consultation with the stakeholders’ consultation committee. For this purpose, “not readily realisable asset” means any asset included in the liquidation estate which could not be sold through available options and includes contingent or disputed assets, and assets underlying proceedings for preferential, undervalued, extortionate credit and fraudulent transactions. Thus, a liquidator shall attempt to sell the assets at the first instance, failing which he may assign or transfer an asset to any person, in consultation with the stakeholders’ consultation committee, and failing which he may distribute the undisposed of assets amongst stakeholders, with the approval of the AA.

7. There may be a creditor who may not be willing to wait for the completion of the liquidation process for realisation of his debt. The IBBI amended the Regulations to enable a creditor to assign or transfer the debt due to it to any other person in accordance with the laws for the time being in force dealing with such assignment or transfer.


Insolvency and Bankruptcy Board of India

[Press Release dt. 13-11-2020]

Appointments & TransfersNews

Santosh Kumar Shukla took charge as Executive Director, Insolvency and Bankruptcy Board of India (IBBI) in New Delhi. Immediately before joining IBBI, he was serving as Chief General Manager in the Enforcement Department of the Securities and Exchange Board of India (SEBI).

Mr Shukla has been with the securities market regulator, SEBI since September 1996. He has been serving in various capacities in Departments of Legal Affairs, Enforcement, Enquiries and Adjudication, etc. He has also served as Regional Director of the Western Regional Office of SEBI at Ahmedabad.

Mr Shukla holds a Bachelor’s degree in Law from Gorakhpur University.


IBBI 

[Press Release dt. 19-10-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Company Law Appellate Tribunal (NCLAT): Full Bench of Justice Bansi Lal Bhat (ACJ) and Justice Anant Bijay Singh (Judicial Member) and Dr Ashok Kumar Mishra (Technical Member), while addressing the present application observed that,

A Resolution Applicant whose Resolution Plan stands approved by Committee of Creditors cannot be permitted to alter his position to the detriment of various stake holders after pushing out all potential rivals during the bidding process.

Appellant emerged as the Successful Resolution Applicant in the Insolvency Resolution Process of Astonefield Solar (Gujarat) Pvt Ltd. (Corporate Debtor) assailed the impugned order rejecting the withdrawal application of its resolution plan and cancellation/ revocation/ return/ refund of the Performance Bank Guarantee, on the ground that there is no legal basis or justification for holding that an application for withdrawal of a Resolution Plan post-approval is not maintainable.

Withdrawal of Resolution Professional

Resolution Professional submitted that the appeal is not maintainable in view of the same being squarely covered by the decision of the Appellate Tribunal in

Committee of Creditors of Educomp Solutions Ltd. v. Ebix Singapore Pte. Ltd., Company Appeal (AT) (Insolvency) No. 653 of 2020, wherein it was held that after approval of the resolution plan by the committee of creditors, the adjudicating authority has no jurisdiction to entertain the application withdrawal filed by the resolution applicant and that adjudicating authority cannot enter into the arena of majority decision of the CoC.

Analysis & Decision

Adjudicating Authority was of the view that it had no jurisdiction to permit the withdrawal of a Resolution Plan, which had been duly approved by the Committee of Creditors. Issue of similar nature was sub-judice before the Supreme Court.

Resolution Plan

Before approval of a Resolution Plan by the Committee of Creditors, the Corporate Insolvency Resolution Process passes through various stages.

I&B Code provides for insolvency resolution in a time-bound manner, the object sought to be achieved, inter alia, being maximization of value of assets of corporate persons and balancing the interests of all stakeholders.

Commercial Wisdom

Further, the bench also stated that primacy is given to the Committee of creditors empowered to take a business decision in regard to the feasibility and viability of a Resolution Plan based on their commercial wisdom.

CIRP Process | Bidding Process

This process is in the nature of a bidding process where, based on consideration of the provisions of a Resolution Plan with regard to the financial matrix, the capacity of the Resolution Applicant to generate funds, infusion of funds, upfront payment, the distribution mechanism and the period over which the claims of various stakeholders are to be satisfied besides the feasibility and viability of the Resolution Plan, a Resolution Applicant emerges as the highest bidder (H1) eliminating the Resolution Plans of Resolution Applicants, which are ranked H2 and H3.

Further, approval of a Resolution Plan by CoC would be binding on the corporate debtor and all the stakeholders only after the Adjudicating Authority passes an order under Section 31 of the I&B Code approving the said plan, it does not follow that the Successful Resolution Applicant would be at liberty to withdraw the Resolution Plan sabotaging the entire Corporate Insolvency Resolution Process.

The said move of Resolution Applicant may push the Corporate Debtor into disastrous consequences wherein the Corporate debtor may be liquidated.

There is no express provision in the I&B Code allowing a Successful Resolution Applicant to stage a U-turn and frustrate the entire exercise of Corporate Insolvency Resolution Process.

“Provision for submission of a Performance Bank Guarantee by a resolution applicant while submitting its resolution plan, as required under the amended provisions of IBBI [Insolvency Resolution Process of Corporate Persons] Regulations, 2016 is a step in this direction, but may not be deterrent enough to prevent a Successful Resolution Applicant from taking a U-turn.”

Tribunal opined that the sanctity of the resolution process needs to be maintained and the Resolution Applicant whose Resolution Plan is approved by the CoC cannot be permitted to withdraw the same.

In view of the above, the appeal was dismissed. [Kundan Care Products Ltd. v. Amit Gupta, 2020 SCC OnLine NCLAT 670, decided on 30-09-2020]

Legislation UpdatesRules & Regulations

Insolvency and Bankruptcy Board of India releases the Insolvency and Bankruptcy Board of India (Use of Caveats, Limitations, and Disclaimers in Valuation Reports) Guidelines, 2020.

These Guidelines provide guidance to the Registered Valuers in the use of Caveats, Limitations, and Disclaimers in the interest of credibility of the valuation reports. These also provide an illustrative list of the Caveats, Limitations, and Disclaimers which shall not be used in a valuation report.

These Guidelines shall come into force in respect of valuation reports in respect of valuations completed by Registered Valuers (RVs) on or after 1st October, 2020.

These Guidelines are divided into three sections. The first section elaborates on the need for Caveats, Limitations, and Disclaimers in a valuation report.  The second section provides a guidance note on the use of Caveats, Limitations, and Disclaimers, while the third section provides an illustrative list of Caveats, Limitations, and Disclaimers for each asset class provided in the Rules.

Read the detailed Notification here: NOTIFICATION


Insolvency and Bankruptcy Board of India

[Notification dt. 01-09-2020]

Legislation UpdatesRules & Regulations

The Insolvency and Bankruptcy Board of India (IBBI) notified the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) (Second Amendment) Regulations, 2020 on 05-08-2020.

The Insolvency and Bankruptcy Code, 2016 enables a corporate person to initiate voluntary liquidation process if it has no debt or it will be able to pay its debts fully from the proceeds of the assets. The corporate person appoints an insolvency professional to conduct the voluntary liquidation process by a resolution of members or partners, or contributories, as the case may be. However, there can be situations which may require appointment of another resolution professional as the liquidator.

The amendment made to the Regulations provides that the corporate person may replace the liquidator by appointing another insolvency professional as liquidator by a resolution of members or partners, or contributories, as the case may be.

NOTIFICATION


Insolvency and Bankruptcy Board of India

[Notification dt. 05-08-2020]

Legislation UpdatesRules & Regulations

The Insolvency and Bankruptcy Board of India makes the Insolvency and Bankruptcy Board of India (Insolvency Professionals) (Second Amendment) Regulations, 2020 to amend the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016.

In the Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016, in regulation 12, in sub-regulation (1), for clause (a), the following clause shall be substituted, namely: —

“(a) its sole objective is to provide support services to insolvency professionals;”.

Notification


Insolvency and Bankruptcy Board of India

[Notification dt. 30-06-2020]

Legislation UpdatesRules & Regulations

The Insolvency and Bankruptcy Board of India (IBBI) notified the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2019 on 28th November 2019.

Some of the amendments made by these Regulations are consequential to the Insolvency and Bankruptcy Code (Amendment) Act, 2019, which came into force on 5th August, 2019.

The Insolvency and Bankruptcy Code, 2016 (Code) envisages the corporate insolvency resolution process (CIRP) for reorganisation and insolvency resolution of corporate debtors.  An insolvency professional conducts the CIRP and manages its operations during the CIRP. Keeping in view the responsibilities of the IPs and the importance of CIRP, the Code casts an obligation on the IBBI and the IPA to monitor the performance of IPs and to collect, maintain and disseminate information and records relating to insolvency process of corporate debtors. It also casts an obligation on IPs to forward/submit certain information and records relating to CIRP to the IPA and IBBI.

In the interest of transparency and accountability in conduct of CIRPs and conduct of the IPs, and to facilitate the IBBI, the IPAs and the IPs to discharge of their statutory obligations, the Amendment Regulations require the IPs to file a set of Forms, covering the life cycle of a CIRP, online on an electronic platform hosted on the website of the IBBI at https://www.ibbi.gov.in. An IP shall be liable to action permissible under the Code, including refusal to issue or renew Authorisation for Assignment, for failure to file a Form or for inaccurate or delayed filing.


Ministry of Corporate Affairs

[Press Release dt. 29-11-2019]

[Source: PIB]

Legislation UpdatesRules & Regulations

The IBBI amends the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.

The Insolvency and Bankruptcy Board of India (IBBI) notified the:

  • Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2019 and;
  • the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2019

2. The salient amendments affected by the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Amendment) Regulations, 2019 are:

(a) The amendments specify the process for withdrawal of applications before the constitution of a committee of creditors (CoC), after the constitution of CoC but before the issue of invitation for expression of interest, and after the issue of invitation for expression of interest.

(b) The amendments require that while approving a resolution plan or deciding to liquidate the corporate debtor, the CoC may:

(i) approve a plan providing for contribution for meeting the liquidation costs,

(ii) recommend sale of the corporate debtor or sale of business of the corporate debtor as a going concern, and

(iii) fix, in consultation with the RP, the fee payable to the liquidator,if an order for liquidation is passed by the Adjudicating Authority.

3. The salient amendments affected by the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2019 are:
(i) The amendments specify the process for (a) sale of the corporate debtor as going concern, and (b) sale of the business of corporate debtor as going concern under liquidation. These also provide that where a corporate debtor is sold as a going concern, the liquidation process shall be closed without dissolution of the corporate debtor.

(ii) The amendments require completion of the liquidation process within one year of its commencement, notwithstanding the pendency of applications for avoidance transactions. These provide a model timeline for each task in the liquidation process. It also specifies a maximum time of 90 days from the order of liquidation for completion of compromise or arrangement, if any, proposed by the stakeholders under Section 230 of the Companies Act, 2013. These will ensure that the liquidation process is closed at the earliest.

(iii) The amendments require the financial creditors, who are financial institutions, to contribute towards the liquidation cost, where the corporate debtor does not have adequate liquid resources to complete liquidation, in proportion to the financial debts owed to them by the corporate debtor, in case the CoC did not approve a plan for such contribution during corporate insolvency resolution process. However, such contribution along with interest at bank rate thereon shall form part of liquidation cost, which is paid in priority.

(iv) The amendments provide for the constitution of a Stakeholders’ Consultation Committee having representation from secured financial creditors, unsecured financial creditors, workmen and employees, government, other operational creditors, and shareholder/partners to advice the liquidator on matters relating to the sale. However, the advice of this committee is not binding on the liquidator.

(v) The amendments require that a stakeholder may submit its claim or update its claim submitted during the corporate insolvency resolution process, as on the liquidation commencement date. Along with the submission of claim, a secured creditor shall inform the liquidator of its decision to relinquish its security interest to liquidation estate or to realise its security interest.

(b) The amendments require that while approving a resolution plan or deciding to liquidate the corporate debtor, the CoC may:

(i) approve a plan providing for contribution for meeting the liquidation costs,

(ii) recommend sale of the corporate debtor or sale of business of the corporate debtor as a going concern, and

(iii) fix, in consultation with the RP, the fee payable to the liquidator, if an order for liquidation is passed by the Adjudicating Authority.


[Press Release dt. 25-07-2019]

Insolvency and Bankruptcy Board of India

Foreign LegislationLegislation Updates

The Insolvency and Bankruptcy Board of India (IBBI) has notified on 04-07-2018, the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2018.

The following are salient amendments to the regulations:

a. The regulations provide that wherever the corporate debtor has classes of creditors having at least ten creditors in the class, the interim resolution professional shall offer a choice of three insolvency professionals in the public announcement to act as the authorised representative of creditors in each class. A creditor in a class may indicate its choice of an insolvency professional, from amongst the three choices provided by the interim resolution professional, to act as its authorised representative. The insolvency professional, who is the choice of the highest number of creditors in the class, shall be appointed as the authorised representative of the creditors of the respective class.

b. An application for withdrawal of an application admitted under Section 7, 9 or 10 of the Code (for closure of corporate insolvency resolution process) may be submitted to the interim resolution professional or the resolution professional, as the case may be, before issue of invitation for expression of interest, along with a bank guarantee towards estimated cost incurred for certain purposes under the process. The committee of creditors (CoC) shall consider the application within seven days of its constitution or seven days of receipt of the application, whichever is later. If the application is approved by the CoC with 90% voting share, the resolution professional shall submit the application to the Adjudicating Authority on behalf of the applicant, within three days of such approval.

c. Where rate of interest has not been agreed to between the parties in case of creditors in a class, the voting share of such a creditor shall be in proportion to the financial debt that includes an interest at the rate of eight per cent p.a.

d. Where the appointment of resolution professional is delayed, the interim resolution professional shall perform the functions of the resolution professional from the fortieth day of the insolvency commencement date till a resolution professional is appointed.

e. A meeting of the CoC shall be called by giving not less than five days’ notice in writing to every participant. The CoC may, however, reduce the notice period from five days to such other period of not less than forty-eight hours where there is any authorised representative and to twenty-four hours in all other cases. The authorised representative shall circulate the agenda to creditors in a class and announce the voting window at least twenty-four hours before the window opens for voting instructions and keep the voting window open for at least twelve hours.

f. The resolution professional shall form an opinion whether the corporate debtor has been subjected to certain transactions (preferential transactions, undervalued transactions, extortionate transactions or fraudulent transactions) by 75th day and make a determination of the same by 115th day of the insolvency commencement date.  Where the resolution profesional makes such a determination,  he shall apply to the Adjudicating Authority for appropriate relief before 135th day of the insolvency commencement date.

g. The resolution professional shall publish an invitation for expression of interest (EoI) by the 75th day from the insolvency commencement date. The invitation shall specify the criteria, ineligibility, the last date for submission of EoI and other details and shall not require payment of non-refundable deposit. Any EoI received after the specified time shall be rejected. The resolution professional shall conduct due diligence based on material on record and issue a provisional list of prospective resolution applicants within 10 days of the last date of submission of EoI. On considering objections to the provisional list, the resolution professional shall issue the final list of prospective resolution applicants, within 10 days of the last date for receipt of objections.

h. The resolution professional shall issue the information memorandum, the evaluation matrix and the request for resolution plans (RFRP), within 5 days of issue of the provisional list to the prospective resolution applicants and allow at least 30 days for submission of resolution plans. The RFRP shall detail each step in the process, and the manner and purposes of interaction between the resolution professional and the prospective resolution applicant, along with corresponding timelines. The resolution plan needs to demonstrate that (a) it addresses the cause of default; (b) it is feasible and viable; (c) it has provisions for its effective implementation; (d) it has provisions for approvals required and the timeline for the same; and (e) the resolution applicant has the capability to implement the resolution plan. The CoC shall evaluate the resolution plan strictly as per the evaluation matrix to identify the best resolution plan and may approve it with the required majority. If approved by the CoC, the resolution professional shall endeavour to submit the resolution plan approved by the CoC to the Adjudicating Authority at least fifteen days before the maximum period for completion of corporate insolvency resolution process, along with a compliance certificate in the specified Form.

The regulations provide for a model timeline of the corporate insolvency resolution process assuming that the interim resolution professional is appointed on the date of commencement of the process and the time available is 180 days, as under:

Section / Regulation Description of Activity Norm Timeline
Section 16(1) Commencement of CIRP and appointment of IRP …. T
Regulation 6(1) Public announcement inviting claims Within 3 Days of Appointment of IRP T+3
Section 15(1)(c) / Regulations 6(2)(c) and 12 (1) Submission of claims For 14 Days from Appointment of IRP T+14
Regulation 12(2) Submission of claims Up to 90th day of commencement T+90
Regulation 13(1) Verification of claims received under regulation 12(1) Within 7 days from the receipt of the claim T+21
Regulation 13(2) Verification of claims received under regulation 12(2) T+97
Section 21(6A) (b) / Regulation 16A Application for appointment of AR Within 2 days from verification of claims received under regulation 12(1) T+23
Regulation 17(1) Report certifying constitution of CoC T+23
Section 22(1) / Regulation 19(1) 1st meeting of the CoC

 

Within 7 days of the constitution of the CoC, but with seven days’ notice T+30
Section 22(2) Resolution to appoint RP by the CoC In the first meeting of the CoC T+30
Section 16(5) Appointment of RP On approval by the AA ……
Regulation 17(3) IRP performs the functions of RP till the RP is appointed. If RP is not appointed by 40th day of commencement T+40
Regulation 27 Appointment of valuer Within 7 days of appointment of RP, but not later than 40th day of commencement    T+47
Section 12(A) / Regulation 30A Submission of application for withdrawal of application admitted Before issue of EoI W
CoC to dispose of the application Within 7 days of its receipt or 7 days of constitution of CoC, whichever is later. W+7
Filing application of withdrawal, if approved by CoC with 90% majority voting, by RP to AA Within 3 days of approval by CoC W+10
Regulation 35A RP to form an opinion on preferential and other transactions Within 75 days of the commencement T+75
RP to make a determination on preferential and other transactions Within 115 days of commencement T+115
RP to file applications to AA for appropriate relief Within 135 days of commencement T+135
Regulation 36 (1) Submission of IM to CoC Within 2 weeks of appointment of RP, but not later than 54th day of commencement T+54
Regulation 36A Publish Form G Within 75 days of commencement T+75
Invitation of EoI
Submission of EoI At least 15 days from issue of EoI (Assume 15 days)   T+90
Provisional List of RAs by RP Within 10 days from the last day of receipt of EoI T+100
Submission of objections to provisional list For 5 days from the date of provisional list T+105
Final List of RAs by RP Within 10 days of the receipt of objections T+115
Regulation 36B Issue of RFRP, including Evaluation Matrix and IM Within 5 days of the issue of the provisional list T+105
Receipt of Resolution Plans At least 30 days from issue of RFRP (Assume 30 days) T+135
Regulation 39(4) Submission of CoC approved Resolution Plan to AA As soon as approved by the CoC T+165
Section 31(1) Approval of resolution plan by AA T=180

Note: AAAdjudicating Authority; ARAuthorised Representative; CIRPCorporate Insolvency Resolution Process; CoCCommittee of Creditors; EoIExpression of Interest; IMInformation Memorandum; IRPInterim Resolution Professional; RAResolution Applicant; RPResolution Professional; RFRPRequest for Resolution Plan.

Ministry of Corporate Affairs

Business NewsNews

With an objective to familiarise the eligible and desirous individuals and entities with the process of registration as a valuer with the Insolvency and Bankruptcy Board (IBBI) , the IBBI today released the process required. The process of registration as registered valuer with the IBBI is as under:

A. For Individuals

Step 1: Satisfy yourself that you meet the eligibility requirements prescribed in Rule 3 and qualification and experience prescribed in Rule 4 of the Rules.

Step 2: Thereafter, seek enrolment as a valuer member of a RVO recognized by the IBBI.

Step 3: As a member of a RVO, complete the educational course recognised by the IBBI.

Step 4: Register and pass the computer based Valuation Examination of the relevant Asset Class conducted by the IBBI. Details of the Valuation Examination are available at IBBI website (www.ibbi.gov.in).

Step 5Within three years of passing the valuation examination, submit Form A appended to the Rules, duly filled in along with a payment of Rs. 5900 (Fee of Rs.5000 + 18% GST) in favour of the Insolvency and Bankruptcy Board of India and supporting documents, to your RVO. Quote GST number, if required by you. The Form A is to be submitted, documents to be uploaded and payment is to be made online. Please visit the IBBI web site www.ibbi.gov.in for this purpose.

Step 6: Thereafter, RVO shall verify Form A and other requirements and then submit the Form A along with its recommendation for registration as a valuer to the IBBI. The Form is to be submitted by the RVO online.

Step 7: On receipt of Form A along with recommendation of the RVO, the fee and other documents, the IBBI shall process the application for registration in accordance with the Rules.

B. For Entities (Partnership Firms, LLP and Companies)

Step 1: Satisfy yourself that you meet the eligibility requirements prescribed in rule 3 and qualification and experience prescribed in Rule 4 of the Rules.

Step 2: Submit Form B appended to the Rules, duly filled in along with a payment of Rs.11,800 (Fee of Rs.10,000 + 18% GST) in favour of the Insolvency and Bankruptcy Board of India and supporting documents, to your RVO. Quote GST number, if required by you. The Form B is to be submitted, documents to be uploaded and payment is to be made online. Please visit the IBBI web site www.ibbi.gov.in for this purpose.

Step 3: Thereafter, RVO shall verify Form B and other requirements and then submit the Form B along with its recommendation for registration as a valuer to the IBBI. The Form is to be submitted by the RVO online.

Step 4: On receipt of Form B along with recommendation of the RVO, the fee and other documents, the IBBI shall process the application for registration in accordance with the Rules.

BACKGROUND

Earlier, the Central Government had notified the commencement of Section 247 (relating to valuers) of the Companies Act, 2013 with effect from 18th October, 2017 and also notified the Companies (Registered Valuers and Valuation) Rules, 2017 (hereafter, “Rules”) on the same day. Vide notification dated 23rd October, 2017, the Central Government issued the Companies (Removal of Difficulties) Second Order, 2017 to provide that valuations required under the Companies Act, 2013 shall be undertaken by a person who, having the necessary qualifications and experience, and being a valuer member of a recognised valuer organisation (RVO), is registered as a valuer with the Authority. Vide another notification on the same date, the Central Government delegated its powers and functions under Section 247 of the Companies Act, 2013 to the Insolvency and Bankruptcy Board of India (IBBI) and specified the IBBI as the Authority under the Rules.

Subject to meeting other requirements, an individual is eligible to be a registered valuer, if he (i) is a fit and proper person, (ii) has the necessary qualification and experience, (iii) is a valuer member of a RVO, (iv) has completed a recognised educational course as member of a RVO, and (v) has passed the valuation examination conducted by the IBBI, and (vi) is recommended by the RVO for registration as a valuer. A partnership entity or a company is also eligible for registration subject to meeting the requirements.

Ministry of Corporate Affairs

Business NewsNews

The Insolvency and Bankruptcy Board of India (IBBI) has signed a Memorandum of Understanding (MoU) with Reserve Bank of India (RBI) on the side-lines of the 4th meeting of the  Insolvency Law Committee (ILC) at New Delhi.

The Insolvency and Bankruptcy Code, 2016 (Code) provides for reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of the value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders and, for this purpose, has established an institutional infrastructure comprising of Adjudicating Authorities, the IBBI, insolvency professionals, insolvency professional agencies and information utilities. The IBBI exercises regulatory oversight over the Insolvency Professionals, Insolvency Professional Agencies and Information Utilities. It writes and enforces rules for processes, namely, corporate insolvency resolution, corporate liquidation, individual insolvency resolution and individual bankruptcy under the Code.

Both the RBI and the IBBI are interested in the effective implementation of the Code and its allied rules and regulations, through a quick and efficient resolution process. Therefore, they have agreed under the MoU to assist and co-operate with each other for the effective implementation of the Code, subject to limitations imposed by the applicable laws.

The MoU provides for:

(a) sharing of information between the two parties, subject to the limitations imposed by the applicable laws;

(b) sharing of resources available with each other to the extent feasible and legally permissible;

(c) periodic meetings to discuss matters of mutual interest, including regulatory requirements that impact each party’s responsibilities, enforcement cases, research and data analysis, information technology and data sharing, or any other matter that the parties believe would be of interest to each other in fulfilling their respective statutory obligations;

(d) cross-training of staff in order to enhance each party’s understanding of the other’s mission for effective utilisation of collective resources; (e) capacity building of insolvency professionals and financial creditors;

(f) joint efforts towards enhancing the level of awareness among financial creditors about the importance and necessity of swift insolvency resolution process of various types of borrowers in distress under the provisions of the Code, etc.

Ministry of Corporate Affairs

Legislation UpdatesRules & Regulations

The Insolvency and Bankruptcy Code, 2016 (Code) is a modern economic legislation. Section 240 of the Code empowers the Insolvency and Bankruptcy Board of India (IBBI) to make regulations subject to the conditions that the regulations: (a) carry out the provisions of the Code, (b) are consistent with the Code and the rules made thereunder; (c) are made by a notification published in the official gazette; and (d) are laid, as soon as possible, before each House of Parliament for 30 days.

The IBBI has evolved a transparent and consultative process to make regulations. It has been endeavour of the IBBI to effectively engage stakeholders in the regulation making process. The process generally starts with a working group making draft regulations. The IBBI puts these draft regulations out in public domain seeking comments thereon. It holds a few round tables to discuss draft regulations with the stakeholders. It takes advice of its Advisory Committee. The process culminates with the Governing Board of the IBBI finalising regulations and the IBBI notifies them. This process endeavours to factor in ground reality, secures ownership of regulations, imparts democratic legitimacy and makes regulations robust and precise, relevant to the time and for the purpose.

Public consultation enables collective choice and hence plays an important role in evolution of regulatory framework. The participation of the public, particularly the stakeholders and the regulated, in the regulatory process ensures that the regulations are informed by the legitimate needs of those interested in and affected by regulations.

Given the importance of subordinate legislations for the processes under the Code, it is essential that the IBBI has a structured, robust mechanism, which includes effective engagement with the stakeholders, for making regulations. In fact, Section 196(1)(s) of the Code requires the IBBI to specify mechanisms for issuing regulations, including the conduct of public consultation processes, before notification of regulations.

In sync with this philosophy and the statutory requirement, the IBBI proposes to make regulations to govern the process of making regulations and consulting the public. The IBBI invites comments from public, including the stakeholders and the regulated, on the draft Insolvency and Bankruptcy Board of India (Mechanism for Issuing Regulations), Regulations, 2018 which is annexed to this press release and also available at www.ibbi.gov.in. A cost benefit analysis of the draft regulations is appended at the end of the draft regulations. The comments may be e-mailed at feedback@ibbi.gov.in by 31st March, 2018, with subject line “Mechanism for Issuing Regulations”.

Ministry of Corporate Affairs