Chapter 6 Fast Track Corporation Insolvency Resolution Process – CS Professional Insolvency Law and Practice Notes is designed strictly as per the latest syllabus and exam pattern.
Fast Track Corporation Insolvency Resolution Process – CS Professional Insolvency Law and Practice Study Material
Question 1.
General Car Company (GCC) is a manufacturer of passenger cars. It sells the cars through single brand dealerships across different cities. Because of its inability to compete in the market and continuous losses, GCC has decided to exit the passenger car business and notified its dealers about shutdown of passenger car manufacturing and sales in India.
PoineerCars Ltd. is a passenger car dealer for GCC in Kanpur with an office cum, showroom and having three service centers in Kanpur. Pioneer Cars Ltd. has Bank Loan from ABC Bank (B1) and DEF Bank (B2) for 110 Crores and ₹ 7 Crores respectively. The promoters cum directors of Pioneer Cars Ltd. have also given their Personal Guarantee to the bankers along with mortgage charge on the office premises cum showroom of PoineerCars Ltd. Pioneer Cards Ltd. failed to repay the amount borrowed from the Banks. The banks have issued notice to Pioneer Cars Ltd. On receipt of the notice makes the representation that due to the present market conditions, the company is not able to repay the loan amount to the Banks.
One of the Operational Creditors, M/s Radha Automobiles Private Ltd. having an outstanding payment of ₹ 1 Crore has filed an application to initiate insolvency process under the Insolvency and Bankruptcy Code, 2016.
The NCLT has admitted the Insolvency Application and appointed Ranjeev Kumar Singh, Insolvency Resolution Professional as Interim Resolution Professional. The NCLT has declared moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016.
Subsequently, M/s Radha Automobiles Private Ltd. was informed by the consultant about the Fast Track Insolvency Process. M/s Radha Automobiles Private Limited want to convert the existing Resolution Process to Fast Track Corporate Insolvency Resolution Process.
Poineer Cars Ltd. has contested the application for ‘Conversion of the Corporate Insolvency Process’ into ‘Fast Track Corporate Insolvency Resolution Process’. The promoters and directors have taken a stand that Resolution Process cannot be initiated against them before the NCLT for Corporate Insolvency Resolution Process and it should be filed before Debt Recovery Tribunal.
Question:
Examine whether the NCLT has power to convert the ‘Corporate Insolvency Resolution Process’ as a ‘Fast Track Corporate Insolvency Resolution Process’, under Insolvency and Bankruptcy Code, 2016 as request by M/s Radha Automobiles Ltd. Explain with the help of decided case law(s). (Dec 2019, 6 marks)
Answer:
The Fast Track Corporate Insolvency Resolution Process is different from Corporate Insolvency Resolution Process.
As per sub-section (2) of Section 55 of the Insolvency and Bankruptcy Code, 2016, an application for fast track corporate insolvency resolution process may be made in respect of the following corporate debtors, namely:
(a) a corporate debtor whose assets and income is below a level as may be notified by the Central Government.
(b) The corporate debtor with such class of creditors or such amount of debt as may be notified by the Central Government.
(c) Such other category of corporate persons as may be notified by Central Government.
In the question the level of assets of the corporate debtor has not been given and therefore the only conclusion that can be made is that the Corporate Debtor does not come within the category of corporate debtor in terms of clauses (a), (b) or (c) of sub section (2) of Section 55 of the Code. Therefore, Section 55 of the Code cannot be invoked against the corporate debtor. The Adjudicating Authority has no power to convert Corporate Insolvency Resolution Process as Fast Track Corporate Insolvency Resolution Process under Section 55 of Insolvency and Bankruptcy Code, 2016.
The NCLAT in the matter of Sanjay Kumar Ruia v. Catholic Syrian Bank Ltd & Anr. held that the Adjudicating Authority has no power to convert the ‘Corporate Insolvency Resolution Process’ into a ‘Fast Track Corporate Insolvency Resolution Process’ Under Section 55 of the Insolvency and Bankruptcy Code, 2016.
Question 2.
Read the following carefully and answer the questions given at the end:
BSC Bank filed an application for initiating Corporate Insolvency Resolution Process (CIRP) against one of its borrower company M/s Moon Storm Pvt. Ltd., in the National Company Law Tribunal (NCLT). The NCLT allowed the application and passed order for commencement of CIRP. Rohit has been appointed as Interim Resolution Professional (IRP) and moratorium was declared.
The Committee of Creditor (CoC) was constituted and Rohit was appointed as Resolution Professional by CoC. Meetings of the CoC was convened from time to time and expression of interest for Resolution Plan was invited from various parties via public notice. However, no Resolution Plan was received during the currency of 180 days period. Hence, NCLT on the recommendation of RP extended the initial time period from 180 days to 270 days. Since, no one had shown the expression of interest even during the extended period of 270 days, the CoC appointed another Resolution Professional (RP) after the expiry of 270 days.
When the matter of resolution could not be completed within the extended time. NCLT, extended the period of CIRPty further period of 90 days after the expiry of 270 days by exercising the power conferred under Section 55 of Insolvency and Bankruptcy Code, 2016 by treating the matter as ‘Fast Track Corporate Insolvency Resolution Process’ and also determined the ‘Corporate Insolvency Resolution Process fee’ and the ‘Cost’ incurred and payable to the Resolution Professional.
Aggrieved from the said order of the NCLT, the Resolution Professional preferred appeals against the order of the NCLT. In light of the above facts, answer the following questions:
(a) Whether the NCLT has power to convert the CIRP as a ‘Fast Track Insolvency Resolution Process’ under Section 55 of the Insolvency and Bankruptcy Code, 2016?
(b) Whether Committee of Creditors has jurisdiction to replace the Resolution Professional after completion of 270 days.
(c) Whether the NCLT is empowered to decide the resolution cost, including the resolution fee payable to the Resolution Professional.
(d) How is the fast track process different from the Corporate Insolvency
Resolution Process under Chapter II of Part II of the Insolvency and Bankruptcy Code, 2016. (Dec 2020, 10 marks each)
Answer:
(a) Section 55 of the Insolvency and Bankruptcy Code, 2016 deals with the Fast track corporate insolvency resolution process. According to Section 55 a Corporate Insolvency Resolution process carried out in accordance with this Chapter IV of Part II of the Code be called as fast track corporate insolvency resolution process. An application for fast tract corporate insolvency resolution process may be made in respect of the following corporate debtors, namely:
(a) a corporate debtor with assets and income below a level as may be notified by the Central Government: or
(b) a corporate debtor with such class of creditors or such amount of debt as may be notified by the Central Government, or
(c) Such other category of corporate persons as may be notified by the Central Government.
Section 57 of the Insolvency and Bankruptcy Code, 2016 deals with the manner of initiating fast track corporate insolvency resolution process. An application forfast track corporate insolvency resolution process may be filed by a creditor or corporate debtor as the case may be, along with-
(a) the proof of the existence of default as evidenced by records available with an information utility or such other means as may be specified by the Board; and (b) such other information as may be specified by the Board to establish that the corporate debtor is eligible for fast track corporate insolvency resolution process.
Manner of initiating fast track corporate insolvency resolution process. The given case is similar to Sanjay Kumar Ruia v. Catholic Syrian Bank Ltd. & Anr. (Company Appeal (AT) (Insolvency) No. 560 of 2018) where it was held that the NCLT cannot exercise its power under sub-section (2) of Section 55 of the Code, which was not applicable, and therefore the Adjudicating Authority has no power to convert the ‘Corporate Insolvency Resolution Process’ into a ‘Fast Track Corporate Insolvency Resolution Process’ under Section 55 of the Code.
Section 55 of the Code clarifies that Fast Track CIRP is only limited to certain class of corporate Debtor.
In the present case, the application itself was not filed under Section 55 but filed under Section 7 of the Insolvency and Bankruptcy Code, 2016. Therefore, Section 55 of the Insolvency and Bankruptcy Code, 2016 may not be invoked by NCLT against the Corporate Debtor i.e. NCLT will not have any power or Jurisdiction to convert the CIRP initiated under Section 7, 9 or 10 of IBC as a Fast Track Insolvency Resolution Process under Section 55 of the IBC.
(b) Section 12 of the Insolvency and Bankruptcy Code, 2016, which deals with the time limit for completion of insolvency resolution process and provides that:
1. The corporate insolvency resolution process shall be completed within a period of one hundred and eighty days from the date of admission of the application to initiate such process,
2. The resolution professional shall file an application to the Adjudicating Authority to extend the period of the corporate insolvency resolution process beyond one hundred and eighty days, if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of sixty-six per cent, of the voting shares.
3. On receipt of an application, if the Adjudicating Authority is satisfied that the subject matter of the case is such that corporate insolvency resolution process cannot be completed within one hundred and eighty days, it may by order extend the duration of such process beyond one hundred and eighty days by such further period as it thinks fit, but not exceeding ninety days:
Provided that any extension of the period of corporate insolvency resolution process under this Section shall not be granted more than once.
In terms of Section 27 of the Code, where, at any time during the corporate insolvency resolution process, the Committee of Creditors (COC) is of the opinion that a resolution professional appointed is required to be replaced, it may replace him with another resolution professional.
In terms of Section 30, 31 & 33 of the Code, after completion of 270
days NCLT may either approve the Resolution Plan, if any, as approved by COC or if there is no plan approved, the NCLT pass an order of liquidation.
The given case is similar to Sanjay Kumar Ruia v. Catholic Syrian Bank Ltd. & Anr. (Company Appeal (AT) (Insolvency) No. 560 of 2018) where it was held that the NCLT had no jurisdiction to proceed with the ‘Corporate Insolvency Resolution Process’ beyond the period of 270 days. After completion of 270 days, the Committee of Creditors ceased to exist and thereby they have no jurisdiction to replace a Resolution Professional. Therefore, Committee of Creditors has no jurisdiction to replace Resolution Professional after 270 days in the present case.
(c) Insolvency resolution process costs under Section 5(13) of the Insolvency and Bankruptcy Code, 2016 means- (a) the amount of any interim finance and the costs incurred in raising such finance; (b) the fees payable to any person acting as-a resolution professional; (c) any . costs incurred by the resolution professional in running the business of the corporate debtor as a going concern; (d) any costs incurred at the expense of the Government to facilitate the insolvency resolution process; and (e) any other costs as may be specified by the Board; Regulation 31 of the IBBI (Insolvency Resolution Process of Corporate Persons) Regulation, 2016 states that insolvency resolution process costs under Section 5(13)(e) shall mean-
(a) amounts due to suppliers of essential goods and services under Regulation 32;
(aa) fee payable to authorised representative under sub-regulation (8) of regulation 16A;
(ab) out of pocket expenses of authorised representative for discharge of his functions under section 25A,
(b) amounts due to a person whose rights are prejudicially affected on account of the moratorium imposed under section 14(1 )(d);
(c) expenses incurred on or by the interim resolution professional to the extent ratified under Regulation 33;
(d) expenses incurred on or by the resolution professional fixed under Regulation 34; and
(e) other costs directly relating to the corporate insolvency resolution process and approved by the committee.
Regulation 34 of the IBBI (Insolvency Resolution Process of Corporate Persons) Regulation, 2016 the committee shall fix the expenses to be incurred on or by the resolution professional and the expenses shall constitute insolvency resolution process costs.
Explanation – For the purposes of this Regulation, “expenses” mean the fee to be paid to the resolution professional and other expenses, including the cost of engaging professional advisors, to be incurred by the resolution professional.”
Keeping in view Regulation 31 read with Regulation 34 of the IBBI (Insolvency Resolution Process of Corporate Persons) Regulation, 2016, NCLT had no jurisdiction to decide the resolution cost including the fee payable of the ‘Resolution Professional.
(d) The aim of the Insolvency and Bankruptcy Code, 2016 is to conclude the fast track resolution procedure within half of the default time period specified under the Code. The person or entity seeking the fast track relief must support that the case is fit for the Fast-track. Therefore, whosoever files the application for fast track process under Chapter IV of Part II (Section 55) of the Insolvency and Bankruptcy Code will have to file the application along with the proof of the existence of default as evidenced by records available with an information utility or such other means as may be specified by the Board to establish that the corporate debtor is eligible for fast track corporate insolvency resolution process.
| Fast track Process under Chapter IV of Part II | Corporate Insolvency Resolution Process(CIRP) under Chapter II of Part II |
| Corporate debtor with assets and income below a level as may be notified by the Central Government | No such restrictions. |
| A corporate debtor with such class of creditors or such amount of debt as may be notified by the Central Government | No such restrictions. |
| Time limit for corporate insolvency resolution process be completed within is 90 days from the insolvency commencement date | Time limit is for corporate insolvency resolution process be completed within is 180 days (Maximum 330 days) from the insolvency commencement date |
| Can be extended beyond the Initial period 90 days up to 45 days | Can be extended beyond the initial period of 180 days up to 90 days. |
Question 3.
Under which Section of the Insolvency and Bankruptcy Code, 2016, fast track corporate insolvency resolution process ? Who can make application for fast track corporate insolvency resolution process?
Answer:
- According to Section 55 of the Insolvency and Bankruptcy Code, 2016, a corporate insolvency resolution process carried out in accordance with this Chapter IV of Part II of the Code shall be called as fast track corporate insolvency resolution process.
- An application forfast track corporate insolvency resolution process may be made in respect of the following corporate debtors, namely:
- a corporate debtor with assets and income below a level as may be notified by the Central Government; or
- a corporate debtor with such class of creditors or such amount of debt as may be notified by the Central Government;
- such other category of corporate persons as may be notified by the Central Government.
Question 4.
What is the rationale behind introduction of Fast Track process for insolvency resolution of corporate persons?
Answer:
Insolvency and Bankruptcy Code, 2016 provides for ‘Fast Track Insolvency Resolution Process’. It aims to expedite the insolvency resolution process of certain categories of corporate debtors with lesser complexities. The fast track process which can be initiated by a creditor or the corporate debtor cuts down the time taken to complete an insolvency resolution to almost half as compared to the regular process under the Code.
Question 5.
What is the time period for completion of fast track corporate insolvency resolution process? If the process cannot be completed within stipulated time, then what is the process of extension?
Answer:
- Section 56(1) provides that subject to the provisions of sub-section (3), the fast track corporate insolvency resolution process shall be completed within a period of ninety days from the insolvency commencement date.
- Section 56(2) states that the resolution professional shall file an application to the Adjudicating Authority to extend the period of the fast track corporate insolvency resolution process beyond ninety days if instructed to do so by way of a resolution passed at a meeting of the committee of creditors and supported by a vote of seventy-five per cent, of the voting share.
- As per Section 56(3) on receipt of an application under sub-section (2), if the Adjudicating Authority is satisfied that the subject matter of the case is such that fast track corporate insolvency resolution process cannot be completed within ninety days, it may, by order, extend the duration of such process beyond the said period ninety days by such further period, as it thinks fit, but not exceeding forty-five days.
- Any extension of the fast track corporate insolvency resolution process under this section shall not be granted more than once.
Question 6.
Briefly explain the eligibility criteria for the appointment as a resolution professional for a fast track process of a corporate debtor?
Answer:
The eligibility criteria for the appointment as a resolution professional for a fast track process of a corporate debtor is as under:
- An insolvency professional shall be eligible to be appointed as a resolution professional for a fast track process of a corporate debtor if he, and all partners and directors of the insolvency professional entity of which he is a partner or director are independent of the corporate debtor.
- An insolvency professional shall not.be eligible to be appointed as a resolution professional if he, or the insolvency professional entity of which he is a partner or director, is under a restraint order of the Board.
- An insolvency professional shall make disclosures at the time of his appointment and thereafter in accordance with the Code of Conduct.
- An insolvency professional shall not continue as a resolution professional if the insolvency professional entity of which he is a director or a partner, or any other partner or director of such insolvency professional entity represents any other stakeholders in the same fast track process.
Question 7.
Briefly explain the provisions of Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017?
Answer:
Some of the brief provisions of Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017 is as under:
- Regulation 3 prescribes the eligibility criteria for Resolution Professional for a fast track process of a corporate debtor
- Regulation 4 prescribes the powers of interim resolution professional to access the books of account, records and other relevant documents and information
- An insolvency professional shall make a public announcement immediately on his appointment as an interim resolution professional as per Regulation 6
- An operational creditor, other than workman or employee of the corporate debtor, shall submit proof of his claim to the interim resolution professional in person in Form B as per Regulation 7
- A financial creditor shall submit proof of claim to the interim resolution professional in electronic form in Form C as per Regulation 8.
- A workman or an employee of the corporate debtor shall submit proof of claim to the interim resolution professional in person, by post or by electronic means in Form D as per Regulation 9
- A person claiming to be a creditor, other than those covered under regulations 7, 8, or 9, shall submit proof of its claim to the interim resolution professional or resolution professional in person, by post or by electronic means in Form F of the Schedule as per Regulation 9A
- Regulation 17: The interim resolution professional shall file a report certifying the constitution of the committee to the Adjudicating Authority on or before the expiry of twenty-one days from the date of his appointment.
- Regulation 18: A resolution professional may convene a meeting of the committee as and when he considers necessary, and shall convene a meeting if a request to that effect is made by members of the committee representing thirty-three per cent of the voting rights.
- Regulation 26: The resolution professional shall within seven days of his appointment, appoint one registered valuer to determine the fair value and the liquidation value of the corporate debtor.
- Regulation 36: A resolution plan shall provide for the measures, as may be necessary for insolvency resolution of the corporate debtor for maximization of value of its assets.
- Regulation 37: Regulation prescribes the content of Resolution plan.
- Regulation 38: A resolution applicant shall submit resolution plan(s) prepared in accordance with the Code and these regulations to the resolution professional within the stipulated time.
Question 8.
Explain the meaning of “Fast track process costs”?
Answer:
“Fast track process costs” shall mean
- the amount of any interim finance and the costs incurred in raising such finance;
- the fees payable to any person acting as a resolution professional;
- any costs incurred by the resolution professional in running the business of the corporate debtor as a going concern;
- any costs incurred at the expense of the Government to facilitate the process;
- amounts due to suppliers of essential goods and services under Regulation 31;
- amounts due to a person whose rights are prejudicially affected on account of the moratorium impose of under section 14(1 )(d);
- expenses incurred on or by the interim resolution professional to the extent ratified under Regulation 32;
- expenses incurred on or by the resolution professional fixed under Regulation 33;
- other costs directly relating to the fast track process and approved by the committee.
Question 9.
Explain the meaning of “Resolution plan” as per provisions of Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017?
Answer:
A resolution plan shall provide for the measures, as may be necessary for insolvency resolution of the corporate debtor for maximization of value of its assets, including but not limited to the following:
- transfer of all or part of the assets of the corporate debtor to one or more persons;
- sale of all or part of the assets whether subject to any security interest or not;
- the substantial acquisition of shares of the corporate debtor, or the merger or consolidation of the corporate debtor with one or more persons;
- satisfaction or modification of any security interest;
- curing or waiving of any breach of the terms of any debt due from the corporate debtor;
- reduction in the amount payable to the creditors;
- extension of a maturity date or a change in interest rate or other terms of a debt due from the corporate debtor;
- amendment of the constitutional documents of the corporate debtor;
- issuance of securities of the corporate debtor, for cash, property, securities, or in exchange for claims or interests, or other appropriate purpose;
- change in portfolio of goods or services produced or rendered by the corporate debtor;
- change in technology used by the corporate debtor;
- obtaining necessary approvals from the Central and State Governments and other authorities
Question 10.
What are the contents to be covered in Resolution Plan?
Answer:
Contents to be covered in Resolution Plan includes:
1. A resolution plan shall identify specific sources of funds that will be used to pay the:
- fast track process costs and provide that the fast track process costs will be paid in priority to any other creditor;
- liquidation value due to operational creditors and provide for such payment in priority to any financial creditor which shall in any event be made before the expiry of thirty days after the approval of a resolution plan by the Adjudicating Authority; and
- liquidation value due to dissenting financial creditors and provide that such payment is made before any recoveries are made by the financial creditors who voted in favour of the resolution plan.
2. A resolution plan shall include a statement as to how it has dealt with the Interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor.
3. A resolution plan shall provide
- the term of the plan and its implementation schedule
- the management and control of the business of the corporate debtor during its term; and
- adequate means for supervising its implementation.
4. A resolution plan shall contain details of the resolution applicant and other connected persons to enable the committee to assess the credibility of such applicant and other connected persons to take a prudent decision while considering the resolution plan for its approval.
Question 11.
Briefly explain the process of Approval of Resolution Plan as per Regulation 38 of Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017?
Answer:
- As per Regulation 38, a resolution applicant shall submit resolution plan prepared in accordance with the Code and these regulations to the resolution professional within stipulated time.
- The resolution professional shall submit to the committee all resolution plans which comply with the requirements of the Code and regulations made thereunder
- The committee may approve any resolution plan with such modifications as it deems fit.
- The committee shall, while approving the resolution plan under sub-section (4) of section 30, specify the amounts payable from resources under the resolution plan for the purposes under sub-regulation (1) of regulation 37.
- The Resolution professional shall submit the Resolution plan approved by the committee to the Adjudicating Authority, at least fifteen days before the expiry of the maximum period permitted under section 56 for the completion of the fast track corporate insolvency resolution process.
- The resolution professional shall forthwith send a copy of the order of the Adjudicating Authority approving or rejecting a resolution plan to the participants and the resolution applicant.
- A provision in a resolution plan which would otherwise require the consent of the members or partners of the corporate debtor, as the case may be, under the terms of the constitutional documents of the corporate debtor, shareholders’ agreement, joint venture agreement or other document of a similar nature, shall take effect notwithstanding that such consent has not been obtained.
- No proceedings shall be initiated against the interim resolution professional or the resolution professional, as the case may be, for any actions of the corporate debtor, prior to the fast track commencement date.
- A person in charge of the management or control of the business and operations of the corporate debtor after a resolution plan is approved by the Adjudicating Authority, may make an application to the Adjudicating Authority for an order seeking the assistance of the local district administration in implementing the terms of a resolution plan.