Case Study on IBC 2016

QUESTION

M/s Jooly Private Limited (Corporate Debtor) is a company incorporated on 01.01.2005 under the provisions of Companies Act, 1956, having its registered office at Mumbai. The Authorised Share Capital of the company is Rs. 100, 00, 00,000/- and Paid-up Share Capital of the company is Rs. Rs. 99, 00, 00,000/-.

M/s Jemmy Private Limited(Operational Creditor) is a company incorporated on 01.01.2006 under the provisions of Companies Act, 1956 having its registered office at Kolkata.

M/s Jooly Private Limited approached M/s Jemmy Private Limited for purchase of inputs for his production. It was specifically agreed that upon procuring the inputs by M/s Jooly Private Limited and raising of invoices by M/s Jemmy Private Limited , the entire payment for such invoices shall be made in a timely manner.

As per the arrangement, the M/s Jooly Private Limited placed various purchase orders for supply of inputs . M/s Jemmy Private Limited supplied the goods as per the orders placed by M/s Jooly Private Limited and raised invoices against the said supply. The invoices were duly acknowledged by M/s Jooly Private Limited and an amount as part payments were also made. But thereafter, inspite of various requests made and reminders sent by M/s Jemmy Private Limited, the M/s Jooly Private Limited had neither responded nor repaid the remaining claim.

On failure to pay the outstanding dues by the M/s Jooly Private Limited, the M/s Jemmy Private Limited sent a demand notice dated 01.012019 under Section 8 of the Insolvency and Bankruptcy Code, 2016 to the respondent asking them to make the entire outstanding payments of Rs. 10,00,000/- (Rupees Ten Lakhs) inclusive of interest within 15 days from receipt of the notice, failing which the M/s Jemmy Private Limited shall initiate the Corporate Insolvency Resolution process against the M/s Jooly Private Limited.

Despite the demand notice, the M/s Jooly Private Limited did not pay the amount demanded, neither raised any notice of dispute nor replied to the said notice.

As a next action M/s Jemmy Private Limited filed an application before National Company Law Tribunal (NCLT), seeking to unfold the process of Corporate Insolvency Resolution Process (CIRP).

Based on the above fact, answer the following:

(a) Who can make application before the Adjudicating Authority on behalf of Operational Creditor and where to file such application to initiate the Corporate Insolvency process in the given case and also state the documents needs to be attached with such application under Insolvency and Bankruptcy Code, 2016.

(b) Who can appoint Interim Resolution Professional in case Resolution Professional is not appointed by the Operational Creditor? State the moratorium as envisaged under the provisions of Section 14(1) to (4) of the Insolvency and Bankruptcy Code, 2016 in relation to the Corporate Debtor.

(c) Enumerate the duties of interim resolution professional during the Corporate Insolvency Resolution Process (CIRP) specified under Section 18 of the Insolvency and Bankruptcy Code, 2016.

ANSWER (a)

As per Section 6 of the Insolvency and Bankruptcy Code, 2016, where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under Chapter II of the Part II of the Insolvency and Bankruptcy Code, 2016.

It may be noted that in terms of Section 5(20) of the Insolvency and Bankruptcy Code, 2016 operational creditor means a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred.

Application to initiate the Corporate Insolvency process may be filed before the Adjudicating Authority. In terms of Section 5(1) of the Insolvency and Bankruptcy Code, 2016, Adjudicating Authority means National Company Law Tribunal constituted under section 408 of the Companies Act, 2013.

According to Section 9 of the Insolvency and Bankruptcy Code, 2016, Application for initiation of corporate insolvency resolution process by operational creditor shall be filed in such form and manner and accompanied with such fee as may be prescribed.

The operational creditor shall, along with the application furnish following documents-

• A copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor.
• An affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt.
• A copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available.
• A copy of any record with information utility confirming that there is no payment of an unpaid operational debt by the corporate debtor, if available; and
• Any other proof confirming that there is no payment of any unpaid operational debt by the corporate debtor or such other information, as may be prescribed.

ANSWER (b)

Adjudicating Authority (National Company Law Tribunal) appoint Interim Resolution Professional in case Resolution Professional is not appointed by the Operational Creditor.

Section 14 of the Insolvency and Bankruptcy Code, 2016 deals with Moratorium. Section 14(1) provides that 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:

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority.

(b) transferring, encumbering, alienating or disposing off by the corporate debtor any of its assets or any legal right or beneficial interest therein.

(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

(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.

Section 14(2) states that the supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.

As per Section 14(3) the provisions of sub-section (1) shall not apply to -

(a) such transaction as may be notified by the Central Government in consultation with any financial regulator.

(b) a surety in a contract of guarantee to a corporate debtor. Section 14(4) provides that the order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process. It may be noted 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 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be.

(c) Section 18 of the Insolvency and Bankruptcy Code, 2016 deals with the duties of interim resolution professional.

The interim resolution professional shall perform the following duties, namely: -

(a) Collect all information relating to the assets, finances and operations of the corporate debtor for determining the financial position of the corporate debtor, including information relating to -

(i) business operations for the previous two years.
(ii) financial and operational payments for the previous two years.
(iii) list of assets and liabilities as on the initiation date; and
(iv) such other matters as may be specified.

(b) Receive and collate all the claims submitted by creditors to him, pursuant to the public announcement made under sections 13 and 15.

(c) Constitute committee of creditors.

(d) Monitor the assets of the corporate debtor and manage its operations until a resolution professional is appointed by the committee of creditors.

(e) File information collected with the information utility, if necessary; and

(f) Take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with information utility or the depository of securities or any other registry that records the ownership of assets including -

(i) assets over which the corporate debtor has ownership rights which may be located in a foreign country; (ii) assets that may or may not be in possession of the corporate debtor.
(iii) tangible assets, whether movable or immovable.
(iv) intangible assets including intellectual property.
(v) securities including shares held in any subsidiary of the corporate debtor, financial instruments, insurance policies.
(vi) assets subject to the determination of ownership by a court or authority.

(g) To perform such other duties as may be specified by the Board. It may be noted that the term “assets” shall not include the following, namely: -

(a) assets owned by a third party in possession of the corporate debtor held under trust or under contractual arrangements including bailment.
(b) assets of any Indian or foreign subsidiary of the corporate debtor; and
(c) such other assets as may be notified by the Central Government in consultation with any financial sector regulator.

CONCLUSION

The IBC,2016 is a comprehensive Code for dealing with insolvency of Corporates, Individuals and others. The main objective of CODE,2016 is to resolve insolvency status of a Corporate Debtors through re-organisation and reconciliation. A Financial Creditor, Operational Creditor or a Corporate Debtor itself apply to the Authority for initiation of Corporate Insolvency Resolution Process of the Corporate Debtor. The time period within which CIRP shall be completed in 180 dates from the date of commencement of process. In certain cases, maximum period will be 330 days from the date of commencement. An Interim Resolution Professional shall be appointed by the Financial Creditor , in case of Operational Debtor , IRP shall be appointed by IBBI on the recommendation of NCLT. Please note that the date of commencement will be date of appointment of the IRP, and it is duty of IRP to appoint Committee of Creditors, to ask the creditors to submit their claims and to maximise the value of the Corporate Debtor. The management of the Corporate Debtor transferred in the hand of IRP and CIC. After allowing petition for CIRP the authority declared a moratorium, which lasts from the date of declaration to 180 days. During this period no proceedings started, decree order enforced and any proceedings in any other law will start against the Corporate Debtor. Please note that moratorium is only for Corporate Debtor and not for promoters and personal guarantor of the Corporate Debtor.

DISCLAIMER: The case law presented here is only for sharing knowledge and information with readers. The views are personal and shall not been considered as professional advice. In case of necessity do consult with professionals for more understanding and clarity on subject matter.