{"id":22499,"date":"2023-04-26T16:20:11","date_gmt":"2023-04-26T10:50:11","guid":{"rendered":"https:\/\/gstguntur.com\/?p=22499"},"modified":"2023-04-26T16:20:11","modified_gmt":"2023-04-26T10:50:11","slug":"corporate-insolvency-resolution-process-cs-professional-study-material","status":"publish","type":"post","link":"https:\/\/gstguntur.com\/corporate-insolvency-resolution-process-cs-professional-study-material\/","title":{"rendered":"Corporate Insolvency Resolution Process – CS Professional Study Material"},"content":{"rendered":"

Chapter 3 Corporate Insolvency Resolution Process – CS Professional Insolvency Law and Practice Notes<\/a> is designed strictly as per the latest syllabus and exam pattern.<\/p>\n

Corporate Insolvency Resolution Process – CS Professional Insolvency Law and Practice Study Material<\/h2>\n

Question 1.
\nAn application for Corporate Insolvency Resolution Process (CIRP) was filed by a Bank (being Financial Creditor) against RSI Ltd, which was admitted by the NCLT and an Interim Resolution Professional was appointed, the Committee of Creditors (CoC) was constituted. Vijay, who was a member of the suspended Board of Directors of RSI Ltd was neither allowed participation in CoC nor any information considered confidential was given, either by the resolution professional or the Committee of Creditors. Vijay made representations before the Adjudicating Authority to attend the meeting and for information\/documents. Will Vijay succeed in his claim for attending the Meeting of Committee of Creditors and obtaining information about the CoC proceedings. (June 2019, 6 marks)
\nAnswer:
\nThe facts of the case are similar to the case of Vijay Kumar Jain v. Standard Chartered Bank, Supreme Court of India, 31st January, 2019.
\nIn the matter, an appeal was filed with Supreme Court against orders rejecting the prayer of an erstwhile director for getting copy of the resolution plans from the Resolution Professional(RP). Both the NCLT and NCLAT ruled that appellant had no right to receive the resolution plans.<\/p>\n

RP has contended that only the members of Committee of Creditors(CoC) are entitled to have resolution plans, as per Section 30(3) of the Code read with Regulation 39(2) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Relying on the Notes on Clauses to Section 24 of the Code, they argued that the members of suspended Board of Directors are permitted to participate in CoC meetings only forthe purpose of giving information regarding the financial status of the debtor.
\nIn this case the Supreme Court opined that the statutory scheme, makes it clear that though the erstwhile Board of Directors are not members of the committee of creditors, yet, they have a right to participate in each and every meeting held by the committee of creditors and also have a right to discuss along with members of the committee of creditors all resolution plans that are presented at such meetings.<\/p>\n

The Supreme Court expressly rejected the argument based on Notes on Clauses to Section 24 of the Code and noted that every participant is entitled to a notice of every meeting of the committee of creditors. Such notice of meeting must contain an agenda of the meeting, together with the copies of all documents relevant for matters to be discussed and the issues to be voted upon at the meeting vide Regulation 21 (3)(iii) of CIRP Regulations. The Supreme Court said the expression \u2018documents\u2019 is a wide expression which would certainly include resolution plans.<\/p>\n

Thus, members of erstwhile Board of Directors, being vitally interested in resolution plans that may be discussed at meetings of committee of creditors, must be given a copy of such plans as part of \u2018documents\u2019 that have to be furnished along with notice of such meetings.
\nHence, Vijay will succeed in his claim for attending the meetings of CoC and obtaining information about the CoC proceedings.<\/p>\n

\"Corporate<\/p>\n

Question 2.
\nCan an assignee of Financial Contract make an application under Corporate Insolvency Resolution Process? (Dec 2019, 3 marks)
\nAnswer:
\nYes, as per Rule 4(2) of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, where an applicant for a Corporate Insolvency Resolution Process is an assignee or transferee of a Financial Contract the application shall be accompanied with a copy of the assignment or transfer agreement and other relevant documents as may be required to demonstrate the assignment or transfer.<\/p>\n

Question 3.
\nIf there is NO Financial Creditor, how will the Committee of Creditors be constituted? (Dec 2019, 4 marks)
\nAnswer:
\nAs per Regulation 16 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, where the corporate debtor has no financial debtor or where all financial creditors are related parties of the Corporate Debtor, the Committee shall be formed comprising of the following members:
\n(a) 18 largest Operational Creditors by value.
\n(b) 1 representative elected by all workmen other than those workmen included under sub-clause (a).
\n(c) 1 representative elected by all employees other than those employees included under sub-clause (a).
\nWhere the number of Operational Creditors is less than 18, the Committee shall include all such Operational Creditors.<\/p>\n

Question 4.
\nWhat will be the consequence if Demand of Debt is disputed? (Dec 2019, 4 marks)
\nAnswer:
\nIf demand of debt is disputed and such dispute has been raised before the issuance of notice under section 8 of the Insolvency and Bankruptcy Code,
\n2016, the application shall not be admitted as the Adjudicating Authority is not empowered to go into the dispute. Thus, application can be admitted only if the demand of debt is undisputed.
\nThe Supreme Court has categorically dealt with the definition of \u2018dispute\u2019 in the matter of Mobilox Innovations Private Limited v. Kirusa Software Private Limited by inserting the test of \u2018plausible contention\u2019 while analyzing the existence of dispute. The Supreme Court also clarified that the moonshine defence raised for the very first time by the corporate debtor after the service of the demand notice under section 8 of the Code does not qualify as \u2018dispute\u2019 within the definition of \u2018dispute\u2019 as per Section 5(6) of the Code. .<\/p>\n

Question 5.
\nAn Operational Creditor of a Company has made an application to National Company Law Tribunal (NCLT) for initiating Corporate Insolvency Resolution Process (CIRP) for non-payment his dues for long time. The NCLT ordered for commencement of CIRP. During the course of CIRP period Corporate Director has agreed to settle the dues of Operational Creditor and requested him to withdraw the CIRP.
\nWhether NCLT may allow the withdrawal of application admitted under Insolvency and Bankruptcy Code, 2016 in the above case. Will your answer differ, if the above application is made by Financial Creditor and subsequently Corporate Debtor settle its dues? (Dec 2020, 6 marks)
\nAnswer:
\nSection 12A of the Insolvency and Bankruptcy Code, 2012 provides that the Adjudicating Authority may allow the withdrawal of application admitted under section 7 or Section 9 or Section 10. on an application made by the applicant with the approval of ninety per cent voting share of the committee of creditors, in such manner as may be specified.
\nSection 12A of IBC read with Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 specifically deals with withdrawal of CIRP after admission. Section 12A provides that CIRP can be withdrawn after admission, if the same is approved by ninety per cent voting share of the committee of creditors. Withdrawal may be allowed even after issuance of invitation for Expression of Interest.
\nWhere Committee of Creditors (CoC) is not constituted, a party can approach NCLT for withdrawal of an application on settlement and where CoC is constituted, 90% of the voting share of the CoC agree for withdrawal. The answer would not differ if the application is made by the financial creditor and subsequently corporate debtor settles its dues.<\/p>\n

\"Corporate<\/p>\n

Question 6.
\nFacts of the case :
\nSB Pvt. Ltd. supplied raw materials worth \u20b9 15 lakh in January 2018 to a company named MR Ltd. MR Ltd. issued two cheques for \u20b9 10 lakh, dated 15th April, 2018 and \u20b9 5 lakh, dated 1st June, 2018, in favour of SB Pvt. Ltd. MR Ltd. had availed loan facility of \u20b9 50 lakh from State Bank of India (SBI) and due to non-payment the account became Non-performing Asset (NPA) in the books of SBI. The SBI started recovery measures and lastly filed Corporate Insolvency Resolution Process(CIRP) against the MR Ltd. with the Adjudicating Authority (AA), The Adjudicating Authority admitted the CIRP filed by the SBI and the order of moratorium was passed under section 14 of the Insolvency and Bankruptcy Code, 2016 (the Code) on 6th June, 2018. The first cheque of \u20b9 10 lakh lodged by SB Pvt. Ltd. returned unpaid by its banker for the reason of insufficiency of funds. The SB Pvt. Ltd lodged a criminal complaint under section 138 of the Negotiable Instruments Act. 1881, (Nl Act) against MR Ltd. and its directors in the competent court having jurisdication on 1st June, 2018 (i.e. prior to declaration of moratorium by the AA). The second cheque of 15 lakh was also returned unpaid for the reason of insufficiency of funds and again a second criminal complaint was lodged by the SB Pvt. Ltd. against the MR Ltd. and its directors on 15th June, 2018 (i.e. after declaration of moratorium by the AA). The MR Ltd. and its Directors moved before the Adjudicating Authority and argued that during the period of moratorium proceeding petition under Section 138 of Nl Act was not maintainable. This was opposed by the SB Pvt. Ltd. but the Adjudicating Authority directed the SB Pvt. Ltd. to withdraw the complaint case filed under Section 138 of Nl Act treating it as a proceeding filed after order of moratorium with observation that such action amounts to deliberate attempt on the part of SB Pvt. Ltd. and sheer misuse of the process of law. Aggrieved from the order of the Adjudicating Authority, the SB Pvt. Ltd. preferred appeal before the National Company Law Appellate Tribunal (NCLAT). The NCLAT accepted the appeal and set aside the order of the Adjudicating Authority. Based on the above facts, answer the following questions:
\n(a) Citing relevant case law elaborate the decision of the Adjudicating Authority ? State with reason, if aggrieved party prefers an appeal, will they succeed. (June 2019, 10 marks)
\n(b) Section 14 of the Code states that after declaration of the moratorium no legal action can be maintained against the Corporate Debtor. What will be your answer when:
\n(i) Criminal action under section 138 of Nl Act filed before the declaration of moratoruim; and
\n(ii) Criminal action under section 138 of Nl Act filed after the declaration of moratorium. (June 2019, 10 marks)
\n(c) What effect of the declaration of the moratorium under section 14 of the Insolvency and Bankruptcy Code, 2016 ? (June 2019, 10 marks)
\n(d) Adjudicating Authority appoints Interim Resolution Professional(IRP) under the Insolvency and Bankruptcy Code-Enumerate his role, powers and duties. (June 2019, 10 marks)
\nAnswer:
\n(a) The above case is similar to the facts as was in the cases of Shah Brothers Ispat (P.) Ltd. v. P. Mohanraj and Others, decided by the NCLAT, New Delhi, on 31st July, 2018.<\/p>\n

Decision given by the Adjudicating Authority: The Adjudicating Authority opined that S.B. Pvt. Ltd. had violated order of moratorium issued by Adjudicating Authority, which was a deliberate attempt on part of the SB Pvt. Ltd. and sheer misuse of process of law. The S.B. Pvt. Ltd. was directed to withdraw the complaint filed under Negotiable Instruments Act, 1881 and, in case the S.B. Pvt. Ltd. had not withdrawn, action for violation of moratorium would be taken against it.
\nReasons on chances of success of aggrieved party on Appeal: Section 14 of the Insolvency and Bankruptcy Code, 2016 was apparently misunderstood by the Adjudicating Authority. The language of Section 14 nowhere prohibits the initiation of criminal action. If there would have been the intention of the law maker to include the prohibition of criminal action against the corporate debtor, it would have been specifically mentioned in Section 14 itself.<\/p>\n

The issue before the Appellate Tribunal is as under:
\nWhether the order of moratorium will cover a criminal proceeding under Section 138 of the Negotiable Instruments Act, 1881, which provides punishment of imprisonment for a term which may extend to three years or with fine which may extend to twice the amount of cheque or with both?
\nThe decision to be given in the case with logical reasoning, may be mentioned as under:
\nThe company cannot be imprisoned, therefore aforesaid punishment under Section 138 of the Negotiable Instruments Act, 1881 cannot be imposed against the M.R. Ltd. However, fine can be imposed by a Court of competent jurisdiction on M.R. Ltd, if found guilty. The Directors of the M.R. Ltd. being parties can be imprisoned and also fine may be imposed on them.<\/p>\n

The contention given by the M.R. Ltd. that the proceeding under Section 138 of the Negotiable Instruments Act, 1881 is covered by Clause of sub-section(l)(a) of Section 14 of the Code, therefore, proceedings against the M.R. Ltd. Including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority cannot proceed, is not acceptable by the Appellate Tribunal for the reasons being Section 138 of the Negotiable Instruments Act, 1881 is a penal provision, which empowers the Court of competent jurisdiction to pass order of imprisonment or fine, which cannot be held to be proceeding or any judgment or decree of money claim.
\nImposition of fine cannot held to be a money claim or recovery against the M.R. Ltd. nor order of imprisonment, if passed by the Court of competent jurisdiction on the Directors, they cannot claim benefit of moratorium under Section 14 of the Code. In fact no criminal proceeding is covered under Section 14 of the Code, so the question of moratorium on the criminal complaint under Section 138 of the Negotiable Instruments Act, 1881 stands nowhere.<\/p>\n

\"Corporate<\/p>\n

(b) Section 14(1)(a) of the Insolvency and Bankruptcy Code, 2016,
\nprohibits the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority.
\nThe question arises here is whether the order of moratorium will cover a criminal proceeding under Section 138 of the Negotiable Instruments Act, 1881, which provides for imprisonment for a term which may extend to three years or with fine which may extend to twice the amount of cheque or with both. Imposition of the fine cannot held to be a money claim or recovery against the Corporate Debtor. Same way order of imprisonment, if passed by the Court of competent jurisdiction on the Directors, is not covered under Section 14 of the Code. In fact no criminal proceeding is covered under Section 14 of the Code.
\nHence, filing of criminal complaint under section 138 of the Negotiable Instruments Act, 1881 either before or after the declaration of moratorium under section 14 of the Code will have no effect of moratorium.<\/p>\n

(c) Section 14 of the Insolvency and Bankruptcy Code, 2016 deals with the declaration of Moratorium by the Adjudicating Authority after acceptance of the CIRP application filed by the financial\/operational creditor. It provides as under:
\n1. Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:
\n(a) The institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;
\n(b) Transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;
\n(c) Any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action underthe Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
\n(d) The recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.<\/p>\n

2. The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during the moratorium period.<\/p>\n

3. The provisions of sub-section(l) shall not apply to
\n(a) such transaction as may be notified by the Central Government in consultation with any financial sector regulator;
\n(b) a surety in a contract of guarantee to a corporate debtor.<\/p>\n

4. The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process.
\nProvided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section(1) of Section 31 of the Code or passes an order for liquidation of corporate debtor under Section 33 of the Code, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be.<\/p>\n

(d) Role and Powers of Interim Resolution Professional
\nSection 17(1) of the Insolvency and Bankruptcy Code, 2016 provides that from the date of appointment of the Interim Resolution Professional:
\n(a) The management of the affairs of the corporate debtor shall vest in the interim resolution professional;
\n(b) The powers of the Board of directors or the partners of the corporate debtor, as the case may be, shall stand suspended and be exercised by the interim resolution professional;
\n(c) The officers and managers of the corporate debtor shall report to the interim resolution professional and provide access to such documents and records of the corporate debtor as may be required by the interim resolution professional;
\n(d) The financial institutions maintaining accounts of the corporate debtor shall act on the instructions of the interim resolution professional in relation to such accounts and furnish all information relating to the corporate debtor available with them to the interim resolution professional.
\nSection 17(2) of the Code further provides that the interim resolution professional vested with the management of the corporate debtor, shall
\n(a) Act and execute in the name and on behalf of the corporate debtor all deeds, receipts, and other documents, if any;
\n(b) Take such actions, in the manner and subject to such restrictions, as may be specified by the Board;
\n(c) Have the authority to access the electronic records of corporate debtor from information utility having financial information of the corporate debtor;
\n(d) Have the authority to access the books of accounts, records and other relevant documents of corporate debtor available with Government authorities, statutory auditors, accountants and such other persons as may be specified: and
\n(e) Be responsible for complying with the requirements under any law for the time being in force on behalf of the corporate debtor.<\/p>\n

Duties of Interim Resolution Professional – Section 18 of the Code provides that the person appointed as the Interim Resolution Professional shall perform the following duties:<\/p>\n