assignment of debt during cirp

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IBBI amends the CIRP regulations to streamline the Insolvency Process

Analysing developments impacting business

Introduction

The Insolvency and Bankruptcy Board of India (IBBI) on 18 September 2023 notified the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Second Amendment) Regulations, 2023 (CIRP Amendment Regulations) amending the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations).

The key changes brought about by the CIRP Amendment Regulations are as follows:

The CIRP Amendments have been brought with the intent to streamline the insolvency process and plug in the existing gaps as highlighted by the stakeholders. The submission of chronology of debt and default along with a Section 7 or 9 application under the Code shall aid the AA in swiftly deciding the CIRP initiation applications. Further, the requisitions to be made by the IRP/RP to the promoters/management in regard to the assets of the corporate debtor shall streamline the process of information gathering. Such notices shall also act as evidence for Section 19 applications when filed before the AA.

The amendment with respect to submission of reasons for delay in claim submission, its noting and condonation of delay by the CoC and the NCLT respectively shall reduce emergence of delayed claims post approval of resolution plans and deter multiple litigations. Inclusion of statutory responsibilities for the authorized representatives of the class of creditors shall prove to be beneficial especially in real estate insolvencies which involve hundreds of homebuyers and will bridge information asymmetry. Further, inclusion of minutes of the CoC in Form H will aid the AA in determining the rationale towards approval of a resolution plan.

Effectively the CIRP Amendments are a step in the right direction including the audit related provisions which shall provide necessary flexibility to the CoC to get audits conducted for specific scenarios in a CIRP.

Siddharth Srivastava (Partner), Mohit Kishore (Counsel) and Shikha Mohini (Associate)

For any queries please contact: [email protected]

Dr. Siddharth Srivastava (partners)

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Submission Guidelines

Assignment of Debts under the Insolvency and Bankruptcy Code

[ Aayush Mitruka is a lawyer based in Delhi]

Synergies Dooray Automotive, the first corporate entity to be resolved under the new Insolvency and Bankruptcy Code ( Code ) posed a few very interesting questions and highlighted some grey areas in Code. In the present post I intend to discuss one important issue that came up in the context of assignment of debts.

To put things in perspective, the Code stipulates that after the National Company Law Tribunal ( NCLT ) admits an insolvency application, the Insolvency Resolution Professional ( IRP ), among other things, constitutes a committee of creditors ( CoC ) on the basis of claims received against the corporate debtor. The committee comprises all the financial creditors of the corporate debtor, and they are assigned voting shares based on the size of their debt. However, a related party to whom a corporate debtor owes a financial debt does not have any right of representation, participation or voting in the meetings of the CoC.

Before discussing the issue, it will be beneficial to allude to the brief facts of the Synergies Dooray case. In November 2016, just a week before the Code became operational, Synergies Castings, a sister concern of Synergies Dooray, assigned a major portion of its debt to third-party Millennium Finance by way of three assignment deeds. Note that Synergies Castings had acquired the debt from a consortium of banks by way of a one-time settlement in 2011. In the usual course, Synergies Castings, being a related party would not have been permitted to participate/vote in the meetings of the CoC. Therefore, the maneuvering had secured Millennium Finance ( Millennium ) a place in the CoC.

Understandably, there is no reason to complain when a creditor (related party or otherwise) assigns its loan to somebody, as that is well within their rights. However the important question is whether the assignee should get a seat in the CoC by virtue of the assignment? The Code does not seem to directly provide any answer in this regard. [1]

This particular question came up for consideration in an application filed by Edelweiss Asset Restructuring Company Limited ( Edelweiss ) against Synergies Dooray. Edelweiss challenged the assignment and the constitution of the CoC (which included Millennium), alleging that the assignment of debt by Synergies Casting to Millennium was carried out with the ulterior motive of reducing its (i.e. Edelweiss’) voting rights. It was also argued that the assignment deeds were inadequately stamped and unregistered. However, Edelweiss’ argument did not find favour with the NCLT, Hyderabad and while rejecting the application, the NCLT remarked :

“29. Therefore, the assignment deeds between the two entities also legal and permissible. At most it can be said to be similar to “tax planning” rather tax avoiding. Because of this assignment deed, not only the applicant’s share in total debt is reduced, but other financial creditors/Assignees share also proportionately reduced and they did not object to the same but only the applicant agitates with oblique motive/reasons best known to it. Therefore, a fraudulent attempt made to reduce the Applicant’s share in the total voting rights is not a plausible plea by the Applicant. In the absence of any documentary proof/evidence to the claim of the Applicant, the same is liable to be rejected. Accordingly, the bench rejects the above allegations/claim of the applicant.”

[Emphasis supplied]

Although the NCLT held that such an assignment was legal and permissible, it did not delve into the critical aspect of whether such an assignment would secure the assignee a seat in the CoC. The reasoning provided does not appear very convincing. This question ought to have been discussed at length. A reading of the above quoted paragraph also brings to fore that the decision lends it approval to an assignment undertaken even with the sole objective of securing a seat in the CoC because it is akin to “tax planning”. Edelweiss has preferred an appeal before the NCLAT and the matter is currently pending for its decision.

This issue was once again considered by the NCLT, Mumbai in the case of Fortune Pharma Private Limited . Interestingly, in this case, after filing applications initiating the corporate insolvency resolution process ( CIRP ) but before its admission, two related party creditors assigned their debts to an unrelated third party. Naturally, this diminished the voting share of the applicant creditor, who then filed an application contending that the assignments were executed with an ulterior motive. The NCLT held that disqualification that existed at the time of initiating the CIRP cannot be removed by a mere assignment. It noted that assignment is transfer of one’s right to recover debt to another person and that the rights of the ‘assignee’ are no better than those of an ‘assignor’. Accordingly, the assignee does not get the right to change its status from ‘related’ to ‘unrelated.’

In other words, the NCLT, Mumbai reasoned that since at the inception of the debt it belonged to a related party (who is barred to participate in the proceedings of CoC), the assignment of such a debt will not remove the bar. In my view, though the NCLT was correct in debarring the assignee from participating in the proceedings of the CoC, however the reasoning provided does not appear to inspire much confidence because of the following reasons.

First, it is important to understand that the bar is on the person who is holding the debt and not the nature of the debt per se. It will not be entirely correct to bar somebody (who is otherwise eligible) from voting just because it bought the debt from a related party. Imagine a situation where an original creditor (unrelated) assigns a debt to a related party. Now when this related party creditor assigns a debt to an unrelated X in the usual course of business, will X in this case be barred since at some point in time the debt was held by a related party? The answer to this has to be in the negative.

Second, this will prove to be counter-productive and have unintended repercussions. It will strongly discourage genuine asset reconstruction companies or other interested parties from buying the debt from any related party creditor. Surely, the Code could not have intended to hinder assignments which are undertaken in the usual course of the business.

Third, how do we exactly deal with situations when a CIRP application is being made by an operational creditor under section 9 of the Code? An operational creditor needs to deliver to the corporate debtor a demand notice as per section 8 before invoking section 9. Do we, in these cases, also allow an assignment before filing of an application? It would be impractical to have a one-size-fits-all approach.

The two views and the approaches adopted by two benches of the NCLT on this critical question throws open a can of worms. Let us try to closely examine this issue.

Assignment is essentially a contractual concept and refers to an agreement by which the rights and obligations of one party can be transferred to another. By virtue of assignment, the assignee steps into the shoes of her assignor and agrees to be both bound by it and is entitled to enforce it. Further, to be valid, an assignment agreement must satisfy the requirements under the Indian Contract Act, 1872 ( Act ). Accordingly, an assignment agreement can be declared void under section 23 of the Act if the object of the assignment agreement is (a) of such a nature that, if permitted, it would defeat the provisions of any law; or (b) fraudulent; or (c) involves or implies injury to the person or property of another; or (d) the court regards it as immoral, or opposed to public policy.

At this juncture, it is significant to examine if the NCLT (which exercises summary jurisdiction) would have the power to undertake such an investigation or would it be the prerogative of a civil court? The language of section 60(5)(c) of the Code seem to suggest that the NCLT will have the authority since this will be a “ question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code .”

It cannot be the intention of the Code to allow the promoters to appoint a proxy on the CoC by means of an assignment. It is a well settled principle of law that what may not be done directly cannot be permitted to be done indirectly. However, at the same time it must also be borne in mind that the Code does not aim to discourage any bona fide assignments. In the absence of any guidance in the Code, in order to determine the validity of such assignments, the NCLT ought to investigate the objective behind the assignment. In this regard, the time and the circumstances under which the assignment is made would be one relevant factor. Among other factors, the NCLT may also consider if the assignment is executed in the usual and ordinary course of the business.

This issue undermines the efficiency of the Code and therefore warrants serious consideration. The Code envisages provisions for scrutinizing certain transactions which may compromise the CIRP. One way to address this issue could be by amending the law to include such assignments also within its ambit. Pertinently, under section 240 of the Code, the Insolvency and Bankruptcy Board of India has the power to make regulations. However, since Parliament has been quite proactive in the past in preventing the promoters trying to game the system, it would not be surprising if an amendment is brought in to bring some clarity. It remains to be seen how and when this issue does gets finally elucidated.

– Aayush Mitruka

[1] Regulation 28 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 does not address this issue.

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Thanks for the above post. Its very helpful. Can you share a draft Assignment Agreement as per IBC?

Ad Mr Ayush. Sir.we have settlements our loans with J.M Arc on 12.8.15 in rs 7 Cr.J.M ARC not given permission to sell extra open land to deposit upfront 25% payments. Hence company not sine agreement. B.J.M ARC revoked on 11.12.15.J.M ARC file petition with NCLt for rs 14.5 cr in application. Pls advice your view.

With respect to Mr Mitruka’s views on the issue of assignment, I humbly submit that no amendment in the Code is called for. The Code, in several places, has expressly equated a creditor (by virtue of a business deal) with a creditor who has simply acquired a debt from another, say through assignment. Once the assignment agreement comes out unscathed, the assignee (of any debt) is as much a creditor as any other creditor. So, post the assignment, Millenium is a creditor in his own right. This way there is no question of any ‘related party’. A financial creditor gets a seat in the CoC, irrespective of his lineage. This should be looked at in this simple manner. In the proceedings before NCLT, Hyderabad, all that was said was that these 3 Agreements smacked of malafide because their date of signing was so close to the date of SICA Repeal . To be sure, I fail to see the connection between the two. It was known to all and sundry that SICA Repeal will be brought into force as soon as NCLTs got ready to be constituted.What was the fault of the Assignor or Assignee , even if agreements were signed on the very day on which SICA Repeal was made effective. Edelweiss does not appear to have led any evidence to show that the parties were planning to get around the section 21(2) by signing those assignment agreements. In fact, if the objective was just to get around this section, the date of signing did not need to be close to the date of SICA Repeal coming into effect. Neither NCLT nor the RP could afford to waste time on mere allegations unsupported by any evidence.

Please sir help…. Bank insolvency pr assignment ready krna h… So plz explain I am so very confused..

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Assignment of debt in Corporate Insolvency Resolution Process (CIRP)

Assignment of a debt owed by the Corporate Debtor (CD) from the creditor to another person is allowed as per Regulation 28 of the IBBI (CIRP) Regulations, 2016. As per Regulation 28:

In the event a creditor assigns or transfers the debt due to such creditor to any other person during the insolvency resolution process period, both parties shall provide the interim resolution professional or the resolution professional, as the case may be, the terms of such assignment or transfer and the identity of the assignee or transferee.
The resolution professional shall notify each participant and the Adjudicating Authority of any resultant change in the committee within two days of such change.

Hence, during CIRP, debt assignment can be done.

Regulation 28 has to be read with Section 5(7) of the Insolvency and Bankruptcy Code, 2016. As per Section 5(7):

“ financial creditor” means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to ;”

The above may not be interpreted to mean that assignee will become a financial creditor with a seat on the Committee of Creditor. The Code recognises that financial creditor can be related party financial creditor or non-related party financial creditor. However, the differentiation between related party and non-related party financial creditor is relevant only for the purpose of Section 21(2) First proviso which states that related party financial creditors cannot have any right of representation, participation or voting in a meeting of Committee of Creditors.

So, what the assignee will become?

If we go to regulation 28, it is clear that the Resolution Professional or Interim Resolution Professional is not having any discretion on whether the assignee will become related party financial creditor or non-related party financial creditor.

However, he has certain leeway when he is constituting the Committee of Creditors for the first time, as Section 21(2) First Proviso states that related party financial creditors shall be excluded from Committee of Creditors. As per Section 21(1), the Interim Resolution Professional (IRP) has to constitute Committee of Creditors. Hence, it is clear that certain decision-making power is given to the IRP under Section 21. He can rely on the declaration provided by the creditor or he can ask for further clarifications and then decide the status of the creditor whether related or unrelated.

However, while coming to the assignment of debt during CIRP, there are two situations in which a debt is assigned:

Debt is assigned before Insolvency Commencement Date: In this case, the IRP has to see the status of the original creditor and also the assignee (whether any of them are related parties) making the claim. In case of Phoenix ARC Vs Spade Financial Services Pvt Ltd , the Hon’ble Supreme Court held that if the assignment was with a view to obtaining a seat in the Committee of Creditors, then the assignee would also get the status of related party.
Debt is assigned after Insolvency Commencement Date but before making a claim before the IRP: In this case also, the IRP has to see the status of the original creditor and the assignee (whether any of them is a related party). In case any of the persons is a related party, the assignee also gets the same status thus barring him from having representation in the Committee of Creditors. At this step, the IRP has to see:
Assignee submits the Form C in this situation.
Whether the assignment is legal, as Section 5(7) refers to the legally assigned Hence, the IRP has to see whether the assignment agreement is properly executed. He has to see also whether there are underlying immovable properties offered as securities to the debt. In this case, the debt assignment along with underlying immovable properties as securities requires registration. Even though as per the Registration Act, a time limit of four months is given for registration of any document, it is to be kept in mind that unregistered agreement (of which registration is compulsory) can’t have any evidentiary value and liable to be rejected on this ground alone.
Whether the consideration has passed from the assignee to the assignor. For this purpose, he can ask for the bank statement of the assignee and assignor for at least one month, covering 15 days prior and 15 days after the transaction date.
Whether the loan agreement between the CD and the assignor-creditor refers to any prior notice to be given to the CD in case of assignment.
Debt is assigned after Insolvency Commencement Date and by a creditor whose claim was admitted by the IRP.
In this situation, the RP’s role is to check the legality of the assignment, passing of consideration, prior notice whether required.
Further, he has to check whether the assignee is a related party.
Other than this, he has no leeway under Regulation 28. He need not determine whether the assignee gets a representation in the Committee of Creditors.
The assignor would have submitted Form C to the IRP and he would have decided whether the assignor was a related party or not. In case the IRP decided that the assignor was a related party, the assignee gets the same status. In case the assignor was a member of CoC, it is quite possible that the assignee is a related party and loses his representation in CoC.
The assignee will not submit any Form C except an intimation to the RP regarding the assignment. The amount of debt will remain the same. In place of the name of the assignor, the assignee’s name will be noted.
In other words, the assignee steps into the shoes of the assignor. However, the shoes cannot become bigger while the assignee steps into them. He takes the same disadvantages that the assignor has. The shoes can become smaller while the assignee steps into them, in case the assignee brings his own disadvantages.
Recording the assignment is limited to replacing the name of the assignor with the assignee. This action of the RP cannot be questioned without questioning the RP’s original decision as per Section 21 on treatment of the debt whether related party debt or not. Once the same is not questioned, the dictum, nemo dat quad non habet

There are two cases decided by the Hon’ble NCLAT with regard to the assignment. These two cases are discussed below:

Edelweiss Asset Reconstruction Company Vs Synergies Dooray: In this case, the assignment was before Insolvency Commencement Date. The debt changed hands twice. Once, the original lenders who were commercial banks, assigned the debt to a related party of the CD. The said related party in turn, assigned them to an unrelated party. Now the NCLAT considered that the original lender is a commercial bank and non-related party. So, the assignee also will get the same status as the original lender irrespective of the fact that the immediate assignor is a related party.
Pankaj Yadav & other Vs SBI and Other: In this case also, the assignment was before Insolvency Commencement Date. However, the debt changed hands only once. The original lender was a related party to the CD and hence, the NCLAT held that the assignee cannot get better position than the assignor and is subject to the same disadvantages as the assignor.

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Corporate Insolvency Resolution Process (CIRP): Provisions And Procedures

By - King Stubb & Kasiva on March 17, 2023

The Corporate Insolvency Resolution Process (CIRP) is a legal procedure established under the Insolvency and Bankruptcy Code, 2016 (IBC) [1] in India, with the objective of addressing the insolvency of corporate entities. The Corporate Insolvency Resolution Process is governed by Section 7 to Section 32 of the Insolvency and Bankruptcy Code, 2016. Section 7 of the Insolvency and Bankruptcy Code, 2016provides for the initiation of the Corporate Insolvency Resolution Process by a financial creditor, while Section 9provides for the initiation by an operational creditor.

Once the Corporate Insolvency Resolution Process is initiated, the process and the various stages involved are laid out in Sections 12 to 32 of the Insolvency and Bankruptcy Code, 2016. It is a time-bound process that aims to provide a quick resolution of insolvency, either through the revival of the company or through liquidation .

For insolvency resolution and bankruptcy proceedings of companies, partnership firms, as well as individuals, a unified framework, is provided in the code. To balance out the interests of stakeholders, encouraging entrepreneurship and accessibility of credit are the prime objective of the Code. In situations like default in debt payments, the provision of the code states that an operational creditor, the corporate debtor itself, or a financial creditor can initiate Corporate Insolvency Resolution Process. The appointment of an Interim Resolution Professional (IRP) via the National Company Law Tribunal i.e., the NCLT is the beginning of the CIRP process.

The powers of the boards of directors are suspended when the Interim Resolution Professional takes over the control of the corporate debtor management. A thorough investigation regarding the financial affairs of the corporate debtor is carried out along with the claims from the creditors are also invited by the Interim Resolution Professional. Responsibility for taking decisions in relation to the resolution process is done by the committee formed by the creditors generally known as the Committee of creditors (CoC). The CoC can approve a resolution plan proposed by a resolution applicant, or decide to liquidate the corporate debtor if noviable resolution plan is found.

The CIRP process is time-bound, with a maximum period of 330 days for completion, including any extension granted by the NCLT. The Code provides for the distribution of proceeds from the sale of assets of the corporate debtor among the creditors in a specified priority order. Overall, the CIRP process provides a transparent and efficient mechanism for the resolution of corporate insolvency in India, which benefits all stakeholders, including creditors, shareholders, and employees.

Role of resolution professional(rp).

The roles of Resolution Professionals (RPs) and Debt Recovery Tribunals(DRTs) are intertwined with respect to debt recovery . For handling the affairs of a company that is undergoing the CIRP a Resolution Professional is selected either by the NCLT or the Debt Recovery Tribunal. The role of an R Palso involves overlooking the selling and management of the company’s assets, raising funds, and upholding the operations of the company along with the preparation of a resolution plan which must be submitted for approval by the creditors.

During the resolution process, the Resolution Professional must guarantee protection of interests of the stakeholders, creditors, and the company. However, Debt Recovery Tribunal is a forum, especially for expeditious adjudication and recovery of debts due to banks and financial institutions. It is responsible for resolving disputes between the lender and the borrower and ensures the recovery of debts owed to the lenders. The DRT follows a quasi-judicial process in hearing and deciding cases related to debt recovery. The proceedings are conducted by the provisions of the Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act,1993 [2] , and the rules and regulations made there under.

Procedure For Filing And Hearing Of Cases In DRT

Any bank or financial institution that has non-performing assets (NPAs) can file an application before the DRT for the recovery of the debt. The application must be filed in the prescribed format and must contain details of the debt owed, the borrower, and the security provided for the loan. Once the application is filed, the DRT will issue a notice to the borrower and any other parties involved, asking them to appear before the tribunal on the specified date.

During the hearing, both the lender and the borrower are allowed to present their case and evidence before the tribunal. The tribunal may also summon witnesses or call for additional documents or evidence as required. Once the hearing is concluded, the tribunal will pass an order, either in favour of the lender or the borrower.

The RP is responsible for managing the assets of a company undergoing the CIRP and preparing a resolution plan for the company. If the resolution plan is approved by the creditors and the NCLT, the RP oversees the implementation of the plan. If the plan is not approved, the RP may initiate liquidation proceedings to recover the outstanding debt. In conclusion, both the RP and the DRT play important roles in debt recovery in India.

While the RP is responsible for managing the affairs of a company undergoing the CIRP and preparing a resolution plan for the company, the DRT is responsible for resolving disputes related to debt recovery and ensuring the recovery of debts owed to lenders. The procedure for filing and hearing cases in DRT is governed by the RDDBFI Act, of 1993 [3] , and the process for CIRP is governed by the Code, of 2016.

Liquidation Process In Corporate Insolvency Resolution Process

If a company undergoing CIRP, resolution plan is not approved by creditors or NCLT then the liquidation process will be initiated. In such a case, the company is liquidated, and its assets are sold to repay the outstanding debt owed to the creditors.

The liquidation process under CIRP is governed by the Insolvency and Bankruptcy Code, 2016, and the rules and regulations made thereunder [4] . The following are the steps involved in the liquidation process:

Appointment of Liquidator: During the liquidation process, the NCLT appoints a liquidator to oversee the affairs of the company. The liquidator assumes management and control of the company's assets and begins the process of selling them in order to repay the creditors.
Preparation of Asset List: The liquidator prepares a list of all the assets of the company and submits it to the NCLT. The asset list includes all movable and immovable assets of the company, including land, buildings, equipment, and inventory.
Sale of Assets: The liquidator initiates the process of selling the assets of the company to repay the outstanding debt owed to the creditors. The assets are sold through a public auction or by way of a private sale.
Distribution of Sale Proceeds: After selling the assets, the money obtained from the sale is distributed among the creditors in accordance with the order of priority as prescribed by the Code, 2016.Secured creditors have the first right over the proceeds, followed by workmen's dues and unpaid dues to the employees.
Closure of Liquidation Process: Once all the assets of the company are sold and the proceeds are distributed among the creditors, the liquidator submits a report to the NCLT stating that the liquidation process is complete. The NCLT then issues an order for the closure of the liquidation process.

Challenges Faced During Corporate Insolvency Resolution Process

The corporate Insolvency Resolution Process (CIRP) is a complex and challenging process that involves multiple stakeholders and legal requirements. Some of the significant challenges faced during the CIRP are as follows:

Lack of Adequate Information: One of the significant challenges in the CIRP process is the lack of adequate and reliable information about the debt or company's financial position, which hinders the identification of potential resolution plans.
Delay in Process: The CIRP process involves multiple stages and requires the coordination of various stakeholders, leading to delays in the process, which may affect the value of assets and the interest of stakeholders.
Limited Participation of Stakeholders: The participation of stakeholders, such as creditors, investors, and operational creditors, in the CIRP process, is limited, leading to conflicts and disagreements, which may delay the process and affect the outcome.
The complexity of Resolution Plans: The resolution plans submitted by the bidders are often complex and require significant financial, legal, and technical expertise, which may be challenging for smaller companies or individual bidders to comprehend.
Litigation and Appeals: The CIRP process is subject to litigation and appeals, which may delay the process and increase the cost of resolution.
Uncertainty about the Outcome: The outcome of the CIRP process is uncertain, and there is no guarantee that the resolution plan will be approved or that the assets will be sold at the expected value, which may deter potential bidders and affect the interest of stakeholders

The Corporate Insolvency Resolution Process (CIRP) is a legal mechanism that helps in debt recovery and corporate restructuring. CIRP provides a structured and time-bound process for resolving financial distress in companies and helps in creating a stable and predictable business environment. Legal requirements must comply during Corporate Insolvency Resolution Process if there is a proposal for any corporate restructuring by the creditors and the NCLT.

The importance of the Corporate Insolvency Resolution Process (CIRP) lies in its ability to facilitate debt recovery, corporate restructuring, preservation of value, protection of the interests of stakeholders, and boost the investment climate. The importance of CIRP can be understood as follows:

Debt Recovery: CIRP provides a structured and time-bound process for debt recovery by enabling creditors to initiate insolvency proceedings against a company that has defaulted on its debt obligations. The CIRP process allows for a fair and transparent resolution of debt and ensures that the interests of all stakeholders, including creditors, are protected.
Corporate Restructuring: CIRP provides an opportunity for corporate restructuring by allowing the debtor company to explore various restructuring options, including the sale of assets, the merger of the company with another entity, or the infusion of capital. The CIRP process helps the company to reorganize its affairs and address the underlying issues that led to its financial distress.
Preservation of Value : CIRP provides for the preservation of the value of the company's assets by ensuring that the assets are managed by a professional and independent insolvency resolution professional (IRP) during the process. This helps in preventing the depletion of the company's assets and ensures that the assets are sold at the best possible price.
Protection of Interests of Stakeholders: CIRP provides for the protection of the interests of all stakeholders, including creditors, employees, shareholders, and other stakeholders, by providing a transparent and fair process for the resolution of the company's financial distress.
Boost to Investment Climate: CIRP provides a boost to the investment climate by creating a level playing field for all investors and ensuring that the resolution process is transparent and predictable. This helps in increasing investor confidence in the market and attracting new investments.

What happens if a resolution plan is not approved in the CIRP?

If a resolution plan is not agreed upon and approved during the CIRP, the company will face liquidation. The insolvency professional in charge of the CIRP will request the liquidation of the company with the NCLT once the resolution process period has ended. After the NCLT approves the liquidation request, a liquidator is appointed to sell off the company's assets and distribute the proceeds to the creditors in accordance with the priority order specified in the IBC, 2016.

How can a company prepare for the CIRP process?

A company can prepare for the CIRP process by maintaining proper books of accounts and financial records, identifying potential risks, developing a contingency plan, appointing a CFO, engaging with creditors, identifying potential resolution professionals, conducting regular internal audits, and taking corrective actions, if necessary. By taking these steps, the company can mitigate the risk of financial distress and be better prepared to manage the CIRP process, if required.

What is the liquidation process in the CIRP?

The liquidation process in the CIRP is initiated when a resolution plan is not approved within the specified period, or the approved resolution plan is not implemented within the specified period. The liquidation process is a time-consuming and expensive process that results in a significant loss of value for the company's stakeholders, including creditors, shareholders, and employees. Therefore, the resolution of the company's financial distress through the approval of a resolution plan is always preferable over liquidation.

[1] Insolvency and Bankruptcy Code, 2016 (IBC)

[2] National Informatics Centre, "The Constitution (Eighty-First Amendment) Act, 2000," (India), accessed March 15, 2023, https://legislative.gov.in/sites/default/files/A1993-51_0.pdf .

[3] Recovery of Debts Due to Banks and Financial Institutions Act 1993 (RDDBFI Act), s 19.

[4] Insolvency and Bankruptcy Code, 2016 (IBC), ss 33-54; Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, reg 3.

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Aviral Jain
Dec 6, 2023

CIRP BY ARC: THE ADMISSIBILITY UNDER SARFAESI AND IBC

Updated: Dec 8, 2023

Case Analysis of Naresh Kumar Agarwal, shareholder of Nikhil Footwear Limited v. CFM Asset Reconstruction Private Limited; Company Appeal (AT) (Insolvency) No. 470 of 2023.

Insolvency and Bankruptcy Code, 2016

INTRODUCTION

As intended, the Insolvency and Bankruptcy Code of India was introduced to simplify the insolvency process of the corporations and ease the resolution of the same. However, the matters still arise as to combat the implication of such code into the system and the companies still fight to the end in order to escape the process.

IBC, 2016 provides with adequate factors to be considered during the resolution process and have been outlined in a way so as to provide with the possible application of the procedure at every stage, i.e., Pre-admission stage, Resolution process, Liquidation stage and Miscellaneous, covering all the facets affecting the insolvency of the corporate debtor.

In the recent judgment of Naresh Kumar Agarwal, shareholder of Nikhil Footwear Limited v. CFM Asset Reconstruction Private Limited [1] , the issue was presented before the adjudicating authority regarding the admissibility of the application for invoking CIRP process by an asset reconstruction company, putting in force various regulations and precedents in order to appeal against the decision of NCLT of accepting the same under section 7 of the code.

This case highlights an important aspect regarding the admissibility and acceptance of the application for proceeding with the CIRP process against the corporate debtor and also defines the status of the corporate guarantor under the same situation. Along with that, this case also reflects towards the inconsistencies lying in the pre-admission stage of the insolvency resolution process.

State Bank of India sanctioned various credit facilities in favor of Action Ispat and Power Private Limited, who was the principal borrower in the current scenario. In the year 2013, Master Restructuring Agreement was executed between the SBI and several other banks with the principal borrower. On 30.09.2013, M/s Nikhil Footwear Pvt Ltd, the corporate debtor in this case, executed a deed of Guarantee in favor of SBICAP Trustee Company. Another Master Restructuring Agreement was entered on 29.06.2016. Now, the State Bank of India filed a company petition CP (IB) No. 1096 of 2018, against the principal borrower, which was admitted by the court on 23.02.2022.

Meanwhile, SBI entered into an agreement on 18.01.2021 with respondent number 1 of the appeal, which is CFM Asset Reconstruction Company, assigning the debt owned by the principal borrower to them.

Now, the CFM Asset Reconstruction Company filed for CIRP under section 7 of the code to recover the amount from corporate debtor, and after deliberation, NCLT, the adjudicating authority under its impugned order 28.02.2023, admitted the application. The corporate debtor was however aggrieved with this decision and filed a fresh appeal before the NCLAT to review the decision so passed by NCLT and contended that this application held no grounds whatsoever to be admitted and should be dismissed outrightly.

The counsel for Nikhil Footwears challenged the order by arguing that the assignment agreement between SBI and CFM Asset Reconstruction was unregistered and that due to it being unregistered, it held no validity, thus negating their power to file an application under section 7 of IBC. They also argued that the deed of guarantee was entered into agreement with SBICAP Trustee Company and can only be enforced by them. Along with this, they also submitted that CIRP against principal borrower, which is Action Ispat and Power Private Limited was already initiated by SBI, as on 23.02.2022, by filling an application under the said section and that the process was already initiated and filing of another application would result in a mala-fide attempt to initiate CIRP on same debt and on same facts.

The counsel for CFM Asset Reconstruction Company, on the other hand, replied to these contentions by highlighting the fact that the agreement between their party and SBI was done in accordance with Section 5 of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, which provides that assignment of financial debt between the financial institution and asset reconstruction company can be effected without requiring any registered document. The counsel also provides that application under section 7 was accepted for another corporate debtor, i.e., Micro Stock Holding Pvt Ltd. and this acceptance provided the precedential value for the same. They also provided with the argument that the liability of corporate debtor and that of principal borrower are co-extensive and so the creditors have full authority to initiate proceedings against the corporate debtor.

The court was presented with a dilemma in deciding as to if the pre-stage application by CFM Asset Reconstruction Company was acceptable under the code and that if the impugned decision of NCLT of admitting the same held any grounds.

NCLAT ANALYSIS

The adjudicating authority analyzed that the relationship between SBI and CFM Asset Reconstruction Company was that of Assignor and Assignee and that the assignment agreement formulated between the two provided respondent, the asset reconstruction company with all the rights, title, and interest in the financing documents and any underlying security interests, pledges and/or guarantees in respect of such loans to the Assignee. NCLAT outrightly rejected the claim of the appellant of the agreement being unregistered as a basis of denying the application under section 7 of the code.

The adjudicating authority provided two reasons for rejecting the appeal of Nikhil Footwears and upholding the decision of NCLT in accepting the application. Court held on to the argument submitted by the respondent that another application pertaining to invoking CIRP against another guarantor Micro Stock Holding Pvt Ltd was accepted by authority and that it being based on the same assignment agreement was neither modified nor reversed leading up to the appeal against the acceptance being rejected.

Section 5 of SARFAESI Act deals with ‘Acquisition of rights or interest in financial assets’ providing relevant provisions for acquisition of financial assets by any asset reconstruction company. The adjudicating authority observed that section 5 was in fact an enabling provision to empower the Asset Reconstruction Companies to acquire financial assets in the manner as prescribed. Observing that the assignment agreement in transaction was in accordance with the section 5, hence the agreement was valid.

Sub-section 2 of Section 5 was further broken down to highlight the fact that this sub section was a deeming clause and it is important to note the fact that any legislature which carries a deeming clause is so because for a specific purpose and object which that legislature is aiming to achieve through its implementation. The court used Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited v. Axis Bank Ltd. & Ors. [2] as a precedent to infer that deeming clause is essentially used to refer the subject matter to be treated as if it were real even though in reality it is not so the case. This analogy helped the court in arriving at the conclusion that when section 5 came into play, the CFM Asset Reconstruction Company was deemed to be lender for all the purposes, and since they were deemed to be lender, they were fully entitled to exercise their rights as lenders to initiate proceedings under section7 of IBC.

The argument that the deed of guarantee being assigned to SBICAP and not SBI and that option of proceedings under section 7 of IBC being available to SBICAP was also not accepted by the court. Since the proceedings were initiated against another debtor which is Micro Stock Holdings Limited was already initiated by the order of court and that the SBICAP being a trustee company for all the lenders and assignment of such debts by the trustee to CFM Asset Reconstruction Company was already accepted by the court, thus this claim was not maintainable.

The court, against the claim of Nikhil Footwears, provided that application under section 7 can be filed against the corporate debtor and can be initiated against both the parties, which is Principal Borrower or Corporate Guarantor and that too in equal measure as mentioned by the Supreme Court in the judgement of Laxmi Pat Surana v. Union of India & Anr. [3]

The court held in its judgment that since no claim was made against the debt or default and that the parties accepted their fault on the part of repayment of the debt and claim being made against only the admission of application under section 7 of the IBC by NCLT, after highlighting all the above points, the application for the same was accepted and the decision of the NCLT was upheld.

The Insolvency and Bankruptcy Code, being a new legislation, is continuously facing various challenges due to it being open-ended covering a bigger prospect of bringing regulations under the bankruptcy subject and is being provisioned to changes every day. In this case too, the applicability of section 7 of the code was put into question and the admission of application for insolvency resolution was challenged.

This case provided a clear image regarding the admissibility of application under the code and the initiation of the resolution process by an Asset Reconstruction Company to which the debt was assigned through an agreement and the validity of such agreement. It also provided a clear stance of the adjudicating authorities on the question pertaining to the initiation of CIRP against the corporate debtor and principal borrower, thus providing a clear view on the liability and charges of all the stakeholders involved in the transaction and setting a precedence for future transactions.

This article was authored by Aviral Jain, a third-year B.Com.LLB. student at Jindal Global Law School

[1] Naresh Kumar Agarwal, Shareholder of Nikhil Footwears Private Limited v. CFM Asset Reconstruction Private Limited, Company Appeal (AT) (Insolvency) No. 470 of 2023. [2] Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited v. Axis Bank Ltd. & Ors., (2020) 8 SCC 401. [3] Laxmi Pat Surana v. Union of India & Anr., (2021) 8 SCC 481.

Case Briefs and Analysis

NCLT Delhi: Debt Assignment Deed Cannot Be Challenged In CIRP U/s 7 Of IBC

Sachika vij.

31 Jan 2024 5:55 AM GMT

NCLT Delhi: Debt Assignment Deed Cannot Be Challenged In CIRP U/s 7 Of IBC

The National Company Law Tribunal ('NCLT') New Delhi Bench, comprising Justice Mahendra Khandelwal (Judicial Member) and Dr. Sanjeev Ranjan (Technical Member) held that the Debt Assignment Deed cannot be challenged in a Corporate Insolvency Resolution Process ('CIRP') under Section 7 of Insolvency and Bankruptcy Code, 2016 ('IBC'). Background Facts: CFM Asset...

Background Facts:

CFM Asset Reconstruction Private Limited (Applicant), registered with the Reserve Bank of India as a Securitization and Asset Reconstruction Company has filed a CIRP application against M.G. Finvest Private Limited (Corporate Debtor) under Section 7 of the IBC. for a default of Rs. 1025.53 crores.

The Corporate Debtor is one of the guarantors of the financial facilities availed by Action Ispat & Power Pvt. Ltd. (Principal Borrower) from a consortium of banks including State Bank of India ('SBI'). The Applicant is the assignee of SBI. In 2013, on default of repayment a Master Restructuring Agreement was entered and a Deed of Guarantee was executed by Corporate Debtor in favour of the Borrower and the same was executed in favour of SBICAP Trustee Company Limited, the Corporate Debtor being the security trustee for the benefit of all the lenders.

On continuous defaults, SBI classified the Borrower's debt as Non-Performing Assets. SBI entered into an Assignment Agreement with Applicant assigning its rights, title and interest in the financing documents, all agreements, deeds and documents and all collateral and underlying Security interest and/or pledges created to secure, and/or guarantees issued in respect of the repayment of the Loans extended to the Borrower, to the Applicant and the charge was modified and registered in favour of the Applicant.

CIRP against the Principal Borrower as well as different guarantors have been admitted by the Adjudicating Authority.

NCLT Verdict:

The NCLT New Delhi admitted the CIRP and held that the Debt Assignment Deed cannot be challenged in CIRP under Section 7 of IBC.

The Tribunal observed that the assignment of debt essentially being a transaction between the Creditor and the Assignee and assignment is recognized by IBC as a valid mode of transfer of rights u/s 5(7) of IBC. Thus, the entity receiving the said assignment of debt constitutes a “Financial Creditor”. It also noted that NCLAT in Lalan Kumar Singh vs. Phoenix ARC (P) Ltd. observed that the declaration of Assignment Agreement is essentially a civil proceeding.

Moreover, NCLT didn't accept the contention that the assignment deed being unregistered is not legally enforceable as Section 5 (1) of the SARFAESI Act, 2002 empowers a Bank to assign loan to an Asset Reconstruction Company and clause 1A of Section 5 of the SARFAESI Act, 2002 particularly elucidates that documents executed by any bank or financial institution under sub-section (1) in favour of the asset reconstruction company acquiring financial assets for asset reconstruction or securitization shall be exempted from stamp duty.

It held that the proceedings under IBC are summary proceedings and it is beyond the ambit of NCLT to delve into the details regarding the requirement or exemption of registration of the Assignment Agreement dated 18.01.2021. Presently, the assignment does not affect the liability and obligations of the Corporate Debtor to discharge the debt and thus, the Applicant would step into the shoes of SBI under the Assignment Deed.

In conclusion, NCLT noted that the Applicant is a Financial Creditor, the debt in default is a Financial Debt and the same is not barred by limitation, thus, the CIRP against the Corporate Debtor shall be admitted.

Case Title: CFM Asset Reconstruction Pvt. Ltd. Vs. M.G. Finvest Pvt. Ltd.

Case No.: Company Petition IB (IBC) NO. 115/PB/2022

Counsel for Applicant: Mr. P. Nagesh, Sr. Adv. with Mr. Arijit Mazumdar, Ms. Akanksha Kaushik, Mr. Akshay Sharma, Advs.

Counsel for Respondent: Ms. Udita Singh, Adv.

Click Here to Read/Download Order

S&D LEGAL ASSOCIATES

Sep 22, 2020
11 min read

All about Corporate Insolvency Resolution Process (CIRP) under IBC, 2016.

Updated: Sep 23, 2020

It is absolutely natural for businesses, companies and corporates to face major setbacks due to internal or external factors of its environment, but not every setback can and should result in liquidation but instead can be revived through recovery techniques and procedures. Keeping the same vision, Insolvency and Bankruptcy Code, 2016 (IBC) was formed with the aim, inter alia , to" ....promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues.... ."

Further, IBC consolidates and amends laws relating to reorganization and insolvency resolution of individuals, partnership firms & corporate persons in a time bound manner for maximization of value of their assets, to balance the interests of stakeholders. It also significantly changed the order of priority of payment dues. One such major alteration is that now workmen’s dues are given priority over government dues. Further, the code aims to enable faster turnaround of businesses as well as smoother disposal & settlement of insolvency cases.

Thus, it will not be out of place to state that, resolution under IBC fixes the broken businesses or corporates and heal them to bloom back to life. Such revival is a crucial step to save the creditors as well as the interest of the corporate person.

Insolvency and Bankruptcy Code was enacted and enforced in 2016, replacing the Sick Industries Companies Act (SICA, 1985). IBC, 2016 is a creditor centric procedural model which allows the Financial Creditors, Operational Creditors, or the Corporate Applicant itself to initiate the Corporate Insolvency Resolution Proceedings (CIRP). The code further mandates that an insolvent company cannot undertake the liquidation process without going through CIRP. In a CIRP, a number of options for the revival of the insolvent company are chalked out and considered. In cases where CIRP fails, the process of liquidation can be initiated thereafter.

Corporate Insolvency Resolution Process (CIRP)-

CIRP is the standard process to initiate the proceeding for a Corporate Debtor under IBC, 2016. It is a recovery cum repair mechanism for the companies to minimise risk for creditors. This mechanism is used when a corporate becomes insolvent and a financial creditor, an operational creditor or the corporate itself proceeds for the resolution.

CIRP is said to be initiated after the application is made. Initially, It is determined that the person who has made the default is capable of repayment or not. It is processed by the NCLT (National Company Law Tribunal) appointed Insolvency Resolution Professional (IRP) through the evaluation of the assets and liabilities. If the person is found to be able to repay the debt, the company is restructured and if it is found not in the capacity to pay back then the liquidation is processed. The Insolvency Resolution Professional (IRP) acts as the intermediary and help sick units and financial institutions including banks with a smooth takeover or liquidation process.

In accordance with the CIRP, the company would be required to arrange for fresh funds for the operation or may also look for a buyer to sell the company as a going concern. The outstanding debts may be realised through the buyer company (Resolution Applicant) submitting a Resolution Plan to take over and pay off the remaining debts. In case of non-submission of the resolution plan or non-approval of the plan by the committee of creditors (COC), the CIRP process is deemed to have failed. In this condition, the company proceeds for Liquidation.

Stages under CIRP-

1. Filing of Application before NCLT for Initiation of CIRP:

As stated earlier, a CIRP can be initiated by a financial creditor, an operational creditor or the corporate applicant himself. Provisions related to these have been dealt in detail below-

CIRP initiated by a Financial Creditor-

IBC clearly lays down provisions related to CIRP initiated by a financial creditor. The code defines a financial creditor as any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to [1] . This definition essentially encompasses persons entering into purely financial relationship with a company such as loan or debt security. Further, a descriptive definition of 'financial debt' has also been provided in the code which includes a debt along with interest.

Now, as per Section 7 of IBC, a financial creditor can file an application before the adjudicatory body (either solely or jointly with other financial creditors) for CIRP in case a default takes place. A number of requirements need to be fulfilled after which the adjudicatory body can either admit or reject the application. If the application is accepted, then CIRP commences from the date of admission of application. The adjudicatory body is also required to give notice to the applicant in case of any defect in his/her application before rejecting it.

CIRP initiated by an Operational Creditor-

IBC defines an operational creditor as a person to whom operational debt is owed and includes any person to whom such debt has been legally assigned or transferred . [2] In other words, it is a person who renders any service or supplies goods for a consideration, but did not receive any consideration in return.

Under the code [3] , firstly an operational creditor is required to issue a demand notice to the corporate debtor for payment of any unpaid dues in case of default. In turn, the corporate debtor needs to either repay the debt or bring any existence of a dispute into notice of the operational creditor (within 10 days).

After expiry of the said time period, if the default still persists, the operational creditor can file an application before the adjudicatory body for initiation of CIRP. Section 9 of IBC lays down certain requirements to be fulfilled and then the adjudicatory body can either reject or admit the application. If the application is accepted, then CIRP commences from the date of admission of application. The provision requires the adjudicatory body to duly communicate its decision to operational creditor as well as corporate debtor.

CIRP initiated by the Corporate Applicant/Debtor-

In several cases, the corporate debtor applies for insolvency and procedure for this has been provided in detail.

An application for initiation of CIRP under Section 10 of IBC needs to be filed before the adjudicatory body for this purpose. Thereafter, the adjudicatory body can either admit or reject the application. If the application is accepted, then CIRP commences from the date of admission of application.

2. Appointment of Interim Resolution Professional (IRP) and Moratorium:

When an application is filed and the same is admitted by the adjudicatory authority, the CIRP commences. As an effect of this, three major steps are to be taken by the adjudicatory authority [4] -

A moratorium prohibiting 1) continuation or initiation of any legal proceedings against the corporate debtor; 2) transfer of its assets; 3) enforcement of any security interest, 4) recovery of any property from it by an owner etc. is to be declared. The said moratorium lasts till CIRP continues.

An Interim Resolution Professional is to be appointed to undertake management of the company. From this point, company’s management is suspended and ceases to exercise any control.

A Public Announcement declaring the commencement of CIRP needs to be made. This is done to invite claims from other stakeholders.

The code lays down detailed requirements for the above-mentioned steps starting from Section 14 to Section 20 of the code. Most importantly, duties of the Interim Resolution Professional (hereinafter, IRP) have been laid down. One of the most important functions of the IRP is to manage the operations of the corporate debtor as a going concern [5] and to take every step to preserve and protect the value of his property [6] . This requirement goes in line with the basic object of the code.

3. Verification of Claims and Constitution of Committee of Creditors:

Following his appointment, one of the most important duties of an IRP is to receive and collate all the claims submitted to him by various creditors [7] . This involves verification of all the bona fide claims made by creditors as well as determination of the financial position of corporate debtor. Thereafter, the IRP is required to constitute a committee of creditors.

A committee of creditors is a body consisting of only financial creditors of the company [8] . The committee has a right to require the resolution professional to furnish any financial information in relation to the corporate debtor at any time during the corporate insolvency resolution process. This is an important step as it helps in maintaining transparency in the CIRP.

4. Appointment of Resolution Professional:

After the constitution of a committee of creditors, the next important step is appointment of a resolution professional.

The code gives power to committee of creditors to appoint a resolution professional in order to undertake duties of the IRP thereafter. The committee can either appoint the IRP as resolution professional or replace the IRP with a new resolution professional [9] .

A resolution professional has responsibility to conduct the CIRP as well as to manage the operations of corporate debtor [10] .

Another major responsibility of the resolution professional is to prepare an information memorandum [11] and to provide it to resolution applicants who then prepare a resolution plan keeping the information memorandum in mind.

Further, notably, the code provides for a number of transactions that cannot be undertaken by a resolution professional without getting prior approval of the committee of creditors [12] .

5. Submission and Approval of Resolution Plan:

A resolution is nothing but the proposal that seeks to address the insolvency problems faced by the debtor. A resolution contains the initiatives to be taken up and actions that should be taken up by the debtor in order to normalise the solvency. It can include a plan for corporate restructuring or selling off certain components of the debtor.

RP is expected to then make an announcement inviting prospective prepared applicants to formulate the debtor’s resolution plan. This has to be processed within 75 days from the commencement of the CIRP procedure.

Section 29A bars the debtor himself or any of his guarantors from filing a resolution plan. Any Party other than the exception can file a resolution plan, including but not limited to the interim IP, the RP and the CoC.

After appointment of the resolution professional, he is required to carefully examine all the resolution plans submitted by various resolution applicants [13] .

After ensuring that the requirements laid down under Section 30(2) are fulfilled, the resolution professional shall present selected plans to committee of creditors for its approval. The said approval is made by voting system where all the financial creditors exercise their right to vote and a minimum of 75% of the voting shares is required to approve a plan.

After this, the approved resolution plan needs to be submitted to the adjudicating body by resolution professional. Upon satisfaction, the adjudicatory body approves the plan and thereafter, it becomes binding on stakeholders involved in CIRP [14] . Further, the adjudicating body also holds a power to reject a plan if it does not conform to the requirements.

Time is the essence of CIRP:

IBC, 2016 requires a resolution plan to be approved within a period of maximum 180 days (starting from the date of commencement of CIRP). However, if upon an application filed by the Resolution Professional, the Adjudicatory Authority is satisfied that the subject matter of the case is such that CIRP cannot be completed within 180 days, then an extension of maximum 90 days can be granted. [15] If no plan is approved within this duration, the adjudicatory body can then order liquidation of corporate debtor.

The question that ‘whether the time period prescribed under section 12 is mandatory’ arose before NCLT [16] . The tribunal opined that speed is of essence to the code and hence CIRP must be completed within the said prescribed duration i.e. 180 days. The tribunal further said that any extension can be granted only in exceptional matters and not otherwise.

Another important question which has time and again arisen is that whether any time period consumed in litigation would form part of a CIRP. The tribunal has answered this question in negative. It has opined in a number of cases that the time period consumed in litigation would not form part of the prescribed time period for CIRP prima facie [17] .

A brief perusal of section 12 in consonance with its interpretation given in various case laws reveals that the power of adjudicatory bodies to grant extension has been restricted to a very large extent. On one hand, denial of such an extension can ensure expeditious disposal of CIRP, however, on the other hand, it can hamper justice in several cases. A CIRP has a number of steps involved which makes room for bona fide delays. Keeping this in mind, it becomes imperative to find a right balance between expeditious disposal of proceedings and effective delivery of justice.

Introduction of Section 10A:

The prevalent pandemic and the extraordinary situation it has created in not only seriously affecting the businesses as a whole by creating a stress situation, but also due to the disruption caused by the nationwide lockdown, all of which leading to likely defaults on the part of corporate persons, and thereby making them susceptible to be taken under the relevant provisions of Section 7, and 10 of the IBC as the case may be. Thus, with a view to prevent such a situation from happening and thereby pushing the businesses to insolvency, the Executive promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 which was published in the Gazette of India on 05.06.2020 , whereby a new Section 10A , of which alone we are presently concerned, was inserted after Section 10 of the IBC, 2016.

Section 10A prevents an application from ever being filed for initiation of a CIRP under Sections 7, 9 and 10 of the Code for a default occurring on or after March 25 till September 25 or March 25, 2021, as the case may be . An explanation to the Section also provides that Section 10A of the Code shall not apply to any default committed under the said Section prior to March 25.

This necessarily implies that, CIRPs shall not be initiated for defaults occurring in this period. The debtor shall continue to remain in possession, and the board of the company would also not be suspended, and further , there will be no appointment of resolution professional. Also, the applications under Section 7, 9 and 10 of the IBC, which are filed for defaults which have occurred prior to March 25 shall continue and may be admitted on merit. CIRPs in such cases can clearly be ordered or continued. Further, since no other provisions of the Code are suspended, hence, ongoing CIRPs may continue, and resolution under Sections 30 and 31, and even withdrawal under Section 12A, may be permitted in accordance with the law.

However, even though the ordinance got promulgated only on 05.06.2020 and published in the Gazette of India, and in case the default had occurred on or after 25.03.2020 then in such a case, the Adjudicating Authority should desist from entertaining such an application, even though it was filed between 25.03.2020 and 05.06.2020, since the words and terms used in Section 10A make it clear that the interdiction imposed therein applies to all the applications ever in relation to the defaults arising on or after 25.03.2020 for a period of six months, extendable upto a period of one year. [18]

Liquidation:

NCLT tries the best possible to not reach a liquidation stage. Therefore this stage only commences when:

The failure on the part of the creditors committee to submit or approve any resolution plan within the timeline provided by the IBC or Adjudication Authority.

The resolution plan is not in compliance with the IBC.

The CoC decides to take the liquidation of the assets by the majority vote.

When the debtor disdains the resolution plan.

While the liquidation is processed, no suit can be filed by or against the corporate debtor [19] . There is the only exception to this is, that the liquidator representing the corporate debtor is based on the permission of the NCLT. The liquidator shall be the same person as the Resolution Professional last replaced. The Liquidator so appointed shall constitute the liquidation estate comprising of all the properties, whether financial or immovable, of the corporate debtor. The claims of the creditors may be received, verified, admitted or rejected based on the final decision of the liquidator within a prearranged time. [1] Insolvency and Bankruptcy Code 2016, S 2(7).

[2] Insolvency and Bankruptcy Code 2016, S 2(20).

[3] Insolvency and Bankruptcy Code 2016, S 8.

[4] Insolvency and Bankruptcy Code 2016, S 13.

[5] Insolvency and Bankruptcy Code 2016, S 20.

[7] Insolvency and Bankruptcy Code 2016, S 18(b).

[8] Insolvency and Bankruptcy Code 2016, S 21.

[9] Insolvency and Bankruptcy Code 2016, s 22.

[10] Insolvency and Bankruptcy Code 2016, S 23.

[11] Insolvency and Bankruptcy Code 2016, S 29.

[12] Insolvency and Bankruptcy Code 2016, S 28.

[13] Insolvency and Bankruptcy Code 2016, S 30. [14] Insolvency and Bankruptcy Code 2016, S 31.

[15] Insolvency and Bankruptcy Code 2016, S 12.

[16] M/S J. K. Jute Mills Company Limited vs. M/S Surendra Trading Company” Company Appeal (AD No. 09 of 2017).

[17] Punjab National Bank & Bhushan Power & Steel Limited C.A. No.152 (PB)/2018 in C.P. (IB)-202(PB)/2017.

[18] Siemens Gamesha Renewable Power Pvt. Ltd. v. Ramesh Kymal, IA 395/2020 in IBA 215/2020 (NCLT Chennai).

[19] Insolvency and Bankruptcy Code 2016, S 14.

(This Article is authored by: 1. Nimisha Shrivastava and 2. Ansh Kesharwani during their internship with S&D Legal Associates)

(Image Source: investopedia.com)

Insolvency Laws

India: Assignment Of Claim To Non-Related Party: A Case For Non-Statutory Insider?

The National Company Law Appellate Tribunal (" NCLAT "), vide its order dated December 14, 2018 in the case of Company Appeal (AT) (Insolvency) No. 169 of 2017 (" Synergies Dooray order "), has rejected the appeal filed by Edelweiss Asset Reconstruction Company Limited (" EARC "), one of the financial creditors of Synergies Dooray Automotive Limited (" Synergies Dooray") , challenging the order dated August 2, 2017 of the Hyderabad bench of National Company Law Tribunal (" NCLT "), approving the resolution plan pertaining to Synergies Dooray. Whilst rejecting the challenge, which was based on the fundamental premise that a 'non-related party' assignee of a related party financial creditors cannot be inducted in the committee of creditors (" CoC ") of a corporate debtor undergoing corporate insolvency resolution process (" CIRP ") under the provisions of Insolvency and Bankruptcy Code, 2016 (" IBC "), NCLAT seemed to have taken view different from its own earlier decision rendered in the case of Pankaj Yadav v. State Bank of India [Company Appeal (AT) (Insolvency) No. 28 of 2018], on August 7, 2018 (" Fortune Pharma order "). The different views taken by NCLAT, which may be justified basis the specific facts of the cases, points to a more fundamental question- can there be a straight-jacket formula which can be applied to ascertain whether an assignee of a debt owed to a related party financial creditor of the corporate debtor be subject to same disqualifications that the related party assignor would be subject to, or would it require a more case-by-case basis analysis, based more on the factual aspect.

It is in light of the above background that, we wish to analyse in this thought paper, whether a non-related assignee of a debt owed to a 'related party' would retain its 'related party' character and the yardsticks that may be applied to ascertain the same.

Legislative Framework

The CoC occupies an important and probably the most critical position during the CIRP of a corporate debtor. Be it the decision to allow withdrawal of CIRP once the same has been admitted 1 , or extending the period of the CIRP beyond the initial period of one hundred eighty days 2 , or appointment 3 or replacement of the resolution professional 4 , all of the aforesaid is dependent upon the relevant majority of members constituting the CoC approving such decision. Approval of a resolution plan is also such an item, which is dependent upon the CoC approving the same with at least sixty six percent of the voting shares of the financial creditors 5 . Accordingly, in the context of approval of the resolution plan at least, the constituents and voting powers of the creditors forming the CoC assumes huge significance.

The constitution of a CoC is governed under sub-section (2) of Section 21 of IBC, which reads as follows:

"21. (2) The committee of creditors shall comprise all financial creditors of the corporate debtor:

Provided that a related party to whom a corporate debtor owes a financial debt shall not have any right of representation, participation or voting in a meeting of the committee of creditors. (emphasis supplied)

Thus, whilst section 21(2) postulates that the CoC will be formed by all the financial creditors of the corporate debtor, if a related party (as defined under section 5(24) of the IBC 6 ) is also a financial creditor of the corporate debtor (" Related Party Creditor "), such related party does not have any right of representation, participation or voting in a meeting of the CoC 7 .

As we have also noted earlier, approval of a resolution plan is dependent upon the approval of requisite majority of members of the CoC. It is in this context of having the right to approve (or reject) a resolution plan, the issue of assignability of debts due to Related Party Creditors, assumes significance, as, in terms of Rule 28 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 , a creditor is allowed to assign or transfers the debt due to such creditor to any person even during the CIRP period and thus, opening up the possibility of potential avoidance of the restriction in influencing the decision making powers of the CoC by assigning/ transferring the debt to associate but 'non-related parties'. To understand how such assignment can potentially affect the decision-making powers of CoC, let us turn our interest to two of the cases referred to in the background to understand the role that related parties played in influencing the resolution plan.

NCLT Decision in the CIRP Involving Synergies Dooray

The Hyderabad Bench of NCLT, vide its order dated January 23, 2017 had admitted the petition filed by the corporate debtor i.e. Synergies Dooray, a sick company under the aegis of erstwhile Sick Industrial Companies (Special Provisions) Act, 1985, seeking initiation of the CIRP under section 10 of the IBC.

The financial creditors of Synergies Dooray were (i) Alchemist Asset Reconstruction Company Limited, with amount of claim admitted amounting to INR 122,06,00,000 (Indian Rupees one hundred and twenty two crores six lakhs) and percentage share in voting in the CoC being 13.83% (thirteen decimal eight three percent); (ii) EARC, with amount of claim admitted amounting to INR 86,92,00,000 (Indian Rupees eighty six crores ninety two lakhs) and percentage share in voting in the CoC being 9.84% (nine decimal eight four percent); (iii) Millenium Finance Limited (" MFL ") with amount of claim admitted amounting to INR 673,91,00,000 (Indian Rupees six hundred seventy three crores ninety one lakhs) and percentage share in voting in the CoC being 76.33% (seventy six decimal three three percent) and (iv) Synergies Castings Limited (" SCL ") with amount of claim admitted amounting to INR 89,26,00,000 (Indian Rupees eighty nine crores twenty six lakhs) and percentage share in voting in the CoC being 0% (zero percent), because SCL was a related party and hence not a part of the CoC as per section 21(2) of the IBC.

Resolution plans were submitted by three entities i.e. SCL, SMB Ashes Industries, Suiyas Industries Private Limited out of which the resolution plan submitted by SCL was approved by a majority vote of 90.16% (ninety decimal one six percent) with certain modifications. It is pertinent to note that EARC had abstained from voting.

An application bearing C.A. No 123/2017 in CP(IB)No.01/HDB/2017 was moved before the NCLT, Hyderabad for submission of the resolution plan under section 30(6) 8 of the IBC and for approval under section 31(1) 9 of the IBC, against which, objections were raised by EARC alleging that MFL was a related party under section 5(24) of the IBC and hence should not have been allowed to be a part of the CoC and vote on the resolution plan.

EARC filed C.A. Nos 43, 56, 57 and 124 of 2017 by questioning the constitution of the CoC and the related party issues. EARC's main contention was that vide an assignment agreement dated November 24, 2016 which was executed between MFL and SCL, SCL had assigned a significant portion of its debts to MFL which gave MFL more than 75% (seventy five percent) voting power in the CoC and thus MFL could approve any resolution plan all by itself. Since SCL was a related party of Synergies Dooray within section 5(24) of the IBC, by the said assignment agreement, MFL would also become a related party and hence should not have been allowed to be a part of the CoC.

Regarding the issue of the status of MFL as a "related party" as defined, under section 5(24) of the IBC, in CA No. 43 of 2017 in CP No. 01/IBC/HDB/2017, the resolution professional had submitted the following:

" 14) With regard to issue of related party, it is stated that related party has been defined under section 5(24) of the IBC by a plain reading of the provisions of section 5(24), it is evident that MFL does not fall into any one of the conditions that may trigger the applicability of section 5(24) so as to establish a related party relationship between SCL and MFL. SCL (Respondent No.4) in the instant case, had assigned its debts to MFL on 24.11.2016, which is even prior to coming into force of the SICA Repeal Act, which came in force on 01.12.2016. In the said background, it is evident that SCL as a part of its commercial decision assigned its dues to MFL and MFL also as a part of its business decision as a Non-Banking Financing Company (NBFC) acquired the debts from SCL. Pursuant to the assignment of the dues of SCL in favour of MFL, the charge of MFL on the assets of the Corporate Debtor has been duly registered and the same forms a part of the application as filed with Tribunal. So the contention of applicant that MFL can fall within the definition of related party qua the Corporate Debtor is not at all tenable and liable to be rejected . Both EARC and MFL are Financial Creditors of the Corporate Debtor who have taken over the loans of the Corporate Debtor from the original lenders." (emphasis supplied)

Accepting the argument of the resolution professional, the NCLT Hyderabad, observed the following:

" 8. So far as the issue relating to allegation of related party, it is to be mentioned here that the applicant like that of MFL got subsequently assigned debt of original lenders. The litigation started by the applicant right from initiation of case before BIFR and EXIM Bank, its original assignee, which is one of seven creditors of corporate debtor. As rightly pointed out by the Learned Resolution professional, MFL cannot be termed as related party and the applicant has no locus standi to question various rights obtained by MFL from SCL by Assignment Agreement Deeds in question. The applicant is making everything a serious issue right from stage of BIFR till date. We have examined the legality of Assignment deeds in question in detail in subsequent CA No. 57 of 2017, wherein we have passed a detailed order by rejecting all the contentions of the applicant. Since initiation of CIRP proceedings only the applicant amongst various financial creditors raised various issues, viz, incorrect admission of claims, constitution of invalid CoC, initial IM, malafide ulterior motive of reducing the voting right of the applicant which is questionable and suspicious, apprehensions, etc. All the other concerns of the Applicant are dealt with above suitably. Therefore, we are of the prima facie opinion that the applicant's action throughout the entire CIRP proceedings which is not acceptable considering the preamble of the Code. After perusing various records, the Bench is of the opinion that there is no relationship between SCL and MFL. The Applicant's submission that the agenda of the meeting of CoC would have far reaching effect which is prejudicial to the interest of the Financial Creditors including the Applicant is factually not correct, since none of the other financial creditors objected to it. With regard to the intentions of the Corporate Debtor as well as its related party SCL, we would like to add that the proceedings before the Adjudicating Authority under the IBC is summary proceedings. Therefore, mensrea cannot be raised before the Adjudicating Authority under the IBC proceedings. " (emphasis supplied)

NCLT Decision in the CIRP Involving Fortune Pharma

CIRP was initiated against Fortune Pharma Private Limited on August 28, 2017 by the Mumbai bench of the NCLT, pursuant to a Section 10 application moved by the corporate debtor on June 29, 2017.

An application was filed by State Bank of India (" SBI ") alleging that, during the period between the date of filing the Section 10 application (being June 29, 2017) and the date of admission (being August 28, 2017), the related parties of the corporate debtor had executed several assignment deeds, whereby the voting power of SBI in the CoC came down from 100% to 55%. SBI contended that the act of assignment of the debt owed by the related parties to a 'non-related' party financial creditor, post filing of the Section 10 application was a malicious act, with the ulterior motive of reducing the voting power of SBI.

The arguments advanced by SBI found favour with NCLT, with both the judicial members penning their concurrent, but separate decisions. Relevant paragraphs in this regard are as follows:

Per Mr. B P Mohan (Member Judicial):

" 9. As regards the disqualification, it is clear that the Mr. Sudhakar H Mulay and Mulay Constructions Private Limited are not entitled to vote in the Committee of Creditors as they are "related parties". In view of the aforementioned peculiar circumstances of this case, and the meticulous planning on the part of the promoter/directors of the Corporate Debtor to execute Assignment Deeds with the sole intention of bringing down the voting power of the Applicant cannot be regarded as a natural business decision. Hence, a related party cannot suddenly become a non-related party just because he washes off his hands and hands over the papers to other party who have no valid reason for taking up assignment of a debt which may not be recoverable . We don't see any business prudence on the part of Brainer Impex Limited and Mr. Pankaj Radhakrishna Yadav in stepping into the shoes of the Assignors. Since the whole transaction is controversial, the disqualification cannot be removed and it follows till the end . The point (b) and (c) are decided in favour of the Applicants and accordingly the voting power of the Applicant is restored back to 100%. " (emphasis supplied)

Per Mr. M K Shrawat (Member Judicial):

" 13. The summum bonum of the above decision is that by an assignment the assignee does not get the right to change its status. If the Assignor is a 'related party' then the assignee shall also be treated in the same status as 'related party' vis-à-vis to the impugned debt . Yet another example is that if the assignor is an 'operational creditor' then as a result of assignment the assignees shall be treated as 'operational creditor' and its status must not for a moment be considered as 'financial creditor'. " (emphasis supplied)

NCLAT's Decisions upon Appeal

As would be apparent from the aforesaid discussion, the Mumbai and Hyderabad benches of the NCLT had taken diametrically opposite views in the context of whether a non-related party assignee of debts of a related party would be treated differently for the purpose of participation in the CoC. When appealed against the respective orders, NCLAT rejected both the appeals preferred against the decisions, albeit on different grounds.

The reason given by NCLAT in the Fortune Pharma order ( supra) to reject the appeal was as under:

" 7. It is not in dispute that the assignor Mr. Sudhakar Mulay was the Director/promoter of the 'Corporate Debtor'. Therefore, he is 'related party' within the meaning of Section 5(24). A legal transfer of 'debt' account from a 'creditor' (assignor) to a third party (assignee) provides the rightful ownership to the assignee. The 'debt assignment' is a transfer of debt with all the rights and obligations associated with it from a creditor to a third party, who is' assignee' . The 'debt' is in the form of loan from a 'financial institution', the debtor is referred as a 'borrower' and if the debt is in the form of securities, such as bonds, the debtor is referred to as an 'issuer'. Undisputedly, the assignment is the transfer of one's right to recover the debt of another person as a contractual right. Rights of an 'assignee' are no better than those of the 'assignor'. It can be, therefore, held that 'assignor' assigns its debt in favour of the 'assignee' and 'assignee' steps in the shoes of the 'assignor'. The 'assignee' thereby takes over the right as it actually did and also takes over all the disadvantages by virtue of such assignment ." (emphasis supplied).

The same may be contrasted with the following observation of NCLAT rendered in the Synergies Dooray order ( supra ):

" In the result, we hereby declare that both 'Synergies Castings Limited' and 'Millennium Finance Limited' were eligible to execute the assignment agreements in question and all rights flow those agreements to 'Millennium Finance Limited'. After getting assignment of rights, the 'Millennium Finance Limited' is fully competent to participate in 'Committee of Creditors' in question and it cannot be called a related party as explained ." (emphasis supplied)

As is apparent from the aforesaid, whilst in the Fortune Pharma order , NCLAT held that the assignee would be subject to the same rights and disadvantages , the issue of disadvantage attaching to the assignee was did not get any mention in the Synergies Dooray order .

Whilst in the ultimate analysis, it could be well argued that the difference in the outcome from the NCLAT decisions was based on the specific factual circumstances 10 , the decisions probably highlight the importance of undertaking a deeper scrutiny of factual elements for determination of restrictions on participation by an assignee of Related Party Creditors in the CoC. In the subsequent paragraphs, it would be our endeavor to ascertain the relevant principles through judicial precedents developed in other bankruptcy-mature jurisdictions and examine whether the same principles would hold good under the IBC or not. In the absence of direct judicial precedents in India, we will also refer to certain foreign judicial developments on the evolution of the jurisprudence on this issue and examine whether the same principles would hold good under the IBC or not.

The rationale behind a creditor assigning its claims against a corporate debtor undergoing insolvency resolution process was discussed by United States Court of Appeals, Third Circuit (" Third Circuit ") in the case of In re KB Toys 11 , in the following terms:

" Creditors holding claims against an entity who has filed a Chapter 11 petition sometimes face a risky and lengthy bankruptcy process. To avoid this risk and expense, a creditor may look to sell its claim , a practice permitted under the bankruptcy rules. In re Kreisler, 546 F.3d 863, 864 (7th Cir.2008) (citing Fed. R. Bankr. P. 3001(e)). By selling its claim, a risk averse creditor can opt out of the bankruptcy process and obtain an immediate, albeit discounted, payment on the debt it is owed. See id. Claim purchasers buy these claims and hope to receive a distribution from the debtor's estate in excess of the price paid. See Tally M. Wiener & Nicholas B. Malito, On the Nature of the Transferred Bankruptcy Claim, 12 U. Pa. J. Bus. L. 35, 36 (2009) ("Some purchasers are simply ... investing with an eye towards receiving a distribution on claims in cash or readily liquidated property in excess of the purchase price .")" (emphasis supplied)

Where the purpose behind acquisition of the claim is to derive distribution on claims from the liquidated property of the corporate debtor, it can be prima facie assumed that, the creditor would be governed by the intention to derive the best possible distribution and not by any other extraneous considerations. It is only where, the decision-making power is influenced by other extraneous considerations, the question of bias and impropriety may arise.

If one wishes to analyse IBC to ascertain whether under IBC, such assignment of claims on preferential terms (or on a non-arm's length basis) can be avoided, he may be directed to Section 43, which deals with preferential transactions and avoidance of such preferential transactions. The relevant part of the section has been reproduced below:

"43. (1) Where the liquidator or the resolution professional, as the case may be, is of the opinion that the corporate debtor has at a relevant time given a preference in such transactions and in such manner as laid down in sub-section (2) to any persons as referred to in sub-section (4), he shall apply to the Adjudicating Authority for avoidance of preferential transactions and for, one or more of the orders referred to in section 44.

(2) A corporate debtor shall be deemed to have given a preference, if—

(a) there is a transfer of property or an interest thereof of the corporate debtor for the benefit of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor and

(b) the transfer under clause (a) has the effect of putting such creditor or a surety or a guarantor in a beneficial position than it would have been in the event of a distribution of assets being made in accordance with section 53." (emphasis applied)

As Section 43(2) of the IBC deals with avoidance of preference given in the context of transfer of property or an interest thereof, reference may also be made to section 3(27) of the IBC, which defines the expression ' property ' as follows:

"(27) "property" includes money, goods, actionable claims, land and every description of property situated in India or outside India and every description of interest including present or future or vested or contingent interest arising out of, or incidental to, property". (emphasis supplied)

The question, however, would be, whether assignment of a claim, owed by the corporate debtor to its creditor, can be challenged under Section 43 of IBC. This in turn begs the question, as to whether, such a claim can at all be classified as property of the corporate debtor. In the context of US Bankruptcy code, the answer would be no, especially in view of the following observation of the Third Circuit in the KB Toys case:

" ASM did not purchase property of the estate. ASM purchased claims against the Debtors' estates. A claim against an estate is not property of that estate . Enron I, 340 B.R. at 206 ("[A] claim as defined under [§] 101(5),is not ,and has never been, considered property of the estate (it is being asserted against ) under [§ ] 541 of the Bankruptcy Code."). Thus, on its face, § 550(b) is inapplicable to ASM ." (emphasis supplied)

Closer home, our own Supreme Court has also, in the case of ICICI Bank Limited v. APS Star Industries Limited 12 , acknowledged the aforesaid principle by noting as follows:

" 46. As stated above, an outstanding in the account of a borrower(s) (customer) is a debt due and payable by the borrower(s) to the bank. Secondly, the bank is the owner of such debt. Such debt is an asset in the hands of the bank as a secured creditor or mortgagee or hypothecate . The bank can always transfer its asset. Such transfer in no manner affects any right or interest of the borrower(s) (customer)..... At this stage, we wish to once again emphasize that debts are assets of the assignor bank . The High Court(s) has erred in not appreciating that the assignor bank is only transferring its rights under a contract and its own asset, namely, the debt as also the mortgagee's rights in the mortgaged properties without in any manner affecting the rights of the borrower(s)/mortgagor(s) in the contract or in the assets . " (emphasis added)

In substance, if the claim owed by corporate debtor to its creditors cannot be considered as a property of the corporate debtor, assignment or transfer of such claim even at non-arm's length basis, would not be subject to anti avoidance rule specified under Section 43 of the IBC. This may pose a critical threat for the success of a genuine attempt being made to revive or liquidate the corporate debtor in a manner which addresses the concerns of all stakeholders, and not only of a few.

The broader question, however, would be, whether the judiciary would be permitted to disregard the voting by an assignee of Related Party Creditor, by virtue of the claim being assigned by the Related Party Creditor.

In this context, it would be interesting to trace the development of the concept of 'insider' under the US Bankruptcy Code, which is analogous to the ' related party ' concept under IBC. The expression 'insider' finds enumeration under section 101(31) 13 of the US Bankruptcy Code and people or entities that fall strictly within the definition of 'insider' are called 'statutory insiders'. However, the US bankruptcy courts have also recognised a class of insiders who are called 'non-statutory insiders' and refers to a person, who is not explicitly listed in section 101(31) of the US Bankruptcy Code, but who has a sufficiently close relationship with the debtor to fall within the definition 14 . It is important to make this distinction because it is on the basis of this that the US Bankruptcy courts have proceeded to decide on the nature of a transferred claim in a bankruptcy case from a statutory insider to a non-insider.

Prior to 2016, there are a plethora of judicial precedents on the moot point as to who is to be considered a non-statutory insider. There are certain judgments which have taken a limited approach 15 in defining non-statutory insiders and there are certain judgments which have taken an expansive approach 16 towards defining non-statutory insiders.

However, an important case on this moot point is US Bank N.A., Trustee, et al., by an through CW Capital Asset Management LLC, solely in its capacity as Special Servicer, Appellant v. The Village at Lakeridge, LLC, Appelee, Rovert Alan Rabkin, Real Party in Interest ( " In Re The Village at Lakeridge, LLC " ) 17 decided by the United States Court of Appeals, Ninth Circuit (" Ninth Circuit ") in February 2016, which addressed the issue that whether a transferred claim retained its insider status for the purpose of voting on the resolution plan. The debtor, Village at Lakeridge, LLC had filed for a Chapter 11 18 bankruptcy. There were two creditors holding claims against the debtor's assets. One was MBP Equity Partners 1, LLC (" MBP ") who held an unsecured claim in the amount of $2.76 million (US Dollars two million seven hundred and sixty thousand) and the other was U.S. Bank National Association (" USBNA ") which held a secured claim in the amount of $10 million (US Dollars ten million). MBP, sold its claim against the debtor to Dr. Robert Rabkin (" Rabkin "), who had a business and personal relationship with one of MBP's board members, but otherwise, had no connection to MBP or the debtor prior to purchasing the claim. The debtor's plan for reorganization could only be confirmed under section 1129(a)(10) of the US Bankruptcy Code if at least one class of impaired claims had voted to accept the plan. Section 1129(a)(10) of the US Bankruptcy Code reads as follows:

"(10) If a class of claims is impaired under the plan, at least one class of claims that is impaired under the plan has accepted the plan, determined without including any acceptance of the plan by any insider. " (emphasis supplied)

USBNA had opposed the plan however, Rabkin had approved the plan. Since, the claims of both the creditors were impaired, the plan had to be approved.

USBNA argued that Rabkin had become a non-statutory insider because of his close relationship with one of the board members of MBPA and hence was not entitled to vote on the plan. The bankruptcy court had granted USBNA's motion and disallowed Rabkin from voting on the reorganization plan as he had become a non-statutory insider. The bankruptcy court's order was reversed by the United States Bankruptcy Appellate Panel for the Ninth Circuit (" BAP ") and it held that:

"insider status cannot be assigned and must be determined for each individual ''on a case-by-case" basis, after the consideration of various factors."

Thus, Rabkin was not a non-statutory insider and was allowed to vote on the reorganization plan.

The Ninth Circuit, in a split verdict, affirmed the BAP's ruling and held the following:

"[11 – 13] ... A person does not become a statutory insider solely by acquiring a claim from a statutory insider for two reasons. First, bankruptcy law distinguishes between the status of a claim and that of a claimant. Insider status pertains only to the claimant; it is not a property of a claim. Because insider status is not a property of a claim, general assignment law - in which an assignee takes a claim subject to any benefits and defects of the claim does not apply . Second, a person's insider status is a question of fact that must be determined after the claim transfer occurs ."

"[14] ... Further, if a third party could become an insider as a matter of law by acquiring a claim from an insider, bankruptcy law would contain a procedural inconsistency wherein a claim would retain its insider status when assigned from an insider to a non-insider, but would drop its non-insider status when assigned from a non-insider to an insider. " (emphasis supplied)

However, in the decision rendered in In re The Village at Lakeridge, LLC , there was an interesting precedent which was cited by USBNA, but the Ninth Circuit had conveniently rejected it on technical grounds. USBNA had made reference to a judgment delivered by the Ninth Circuit itself in Wake Fores, Inc. v Transamerica Title Ins. 19 which held that insider status does transfer with a claim under the general law of assignment . However, the Ninth Circuit rejected USBNA's contention by referring to a Ninth Circuit procedural rule stating that unpublished cases issued prior to 2007 could not be cited to courts in the Ninth Circuit.

The ruling by the Ninth Circuit was referred to by the Court of Appeal of the Republic of Singapore in the matter of SK Engineering & Construction Co Ltd v Conchubar Aromatics Ltd and another 20 while determining who is to be treated as a related creditor for the purposes of confirming a scheme of arrangement. It held the following:

"52 The reasoning in this case is persuasive even though it relates to the interpretation of the United States Bankruptcy Code. It would be absurd if a creditor which acquires its claim against a scheme company from a related creditor were to find that the votes attached to the claim are automatically discounted because of the status of the assignor-creditor, regardless of the present assignee-creditor's status and relationship with the scheme company . The purpose of discounting related creditors' votes is to remove or negate the influence of any bias which such creditors might have towards a certain voting outcome. That concern is not attached to the claim, but rather, is attached to the individual creditor in question. Such concerns would not be present if a creditor which acquires its claim against a scheme company from a related creditor has no demonstrable reason for bias towards any particular voting outcome beyond its own interests as a creditor " (emphasis supplied)

The aforesaid approach, in our view, reflects the correct approach in determining whether the assignee of a Related Party Creditor would be subject to the same disqualifications. In fact, it appears to us that, the rationale provided by Mr. B P Mohan (NCLT Member Judicial) in the Fortune Pharma matter followed the same approach in the sense, the decision was not based on whether the assignee is a non-Related Party Creditor (the approach followed by Hyderabad Bench of NCLT in Synergies Dooray case and upheld by NCLAT), or that an assignee automatically becomes disqualified on the basis that the disadvantages applicable to a Related Party ) are also transferred to the assignee (an approach followed by the other judicial member of the Mumbai bench in Fortune Pharma case and which found favour with NCLAT), but on whether the circumstances promoting such assignment was based on non-commercial ulterior motives.

Final Thoughts

It would be interesting to follow the development of jurisprudence in this regard and to examine, if the NCLTs choose to look beyond the apparent status of the assignee, and rather place emphasis on the identification of the assignee-creditor's status vis-à-vis the corporate debtor/ Related Party Creditor to ascertain the intent behind the assignment. Consequently, it would be interesting to consider whether the concept of ' non-statutory insider ' can be introduced even in the Indian context, to mitigate the potential abuse of the spirit behind debarment of Related Party Creditors.

1. See, Section 12A of IBC.

2. See, Section 12(2) of IBC.

3. See, Section 22(2) of IBC.

4. See, Section 27(1) of IBC.

5. See, Section 30(4) of IBC.

6. Section 5(24): "related party", in relation to a corporate debtor, means—

(a) a director or partner of the corporate debtor or a relative of a director or partner of the corporate debtor;

(b) a key managerial personnel of the corporate debtor or a relative of a key managerial personnel of the corporate debtor;

(c) a limited liability partnership or a partnership firm in which a director, partner, or manager of the corporate debtor or his relative is a partner;

(d) a private company in which a director, partner or manager of the corporate debtor is a director and holds along with his relatives, more than two per cent. of its share capital;

(e) a public company in which a director, partner or manager of the corporate debtor is a director and holds along with relatives, more than two per cent. of its paid-up share capital;

(f) anybody corporate whose board of directors, managing director or manager, in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager of the corporate debtor;

(g) any limited liability partnership or a partnership firm whose partners or employees in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager of the corporate debtor;

(h) any person on whose advice, directions or instructions, a director, partner or manager of the corporate debtor is accustomed to act;

(i) a body corporate which is a holding, subsidiary or an associate company of the corporate debtor, or a subsidiary of a holding company to which the corporate debtor is a subsidiary;

(j) any person who controls more than twenty per cent. of voting rights in the corporate debtor on account of ownership or a voting agreement;

(k) any person in whom the corporate debtor controls more than twenty per cent. of voting rights on account of ownership or a voting agreement;

(l) any person who can control the composition of the board of directors or corresponding governing body of the corporate debtor;

(m) any person who is associated with the corporate debtor on account of—

(i) participation in policy making processes of the corporate debtor; or

(ii) having more than two directors in common between the corporate debtor and such person; or

(iii) interchange of managerial personnel between the corporate debtor and such person; or

(iv) provision of essential technical information to, or from, the corporate debtor;

7. The composition of CoC, where the corporate debtor has no financial creditor or if all the financial creditors of the corporate debtor are related parties, has been stipulated under Rule 16 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 which allows the CoC to be constituted of only operational creditors.

8. Section 30(6): The resolution professional shall submit the resolution plan as approved by the committee of creditors to the Adjudicating Authority.

9. Section 31(1): If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.

10. In so far as Synergies Dooray case, whilst, without having all the relevant facts, it would be unfair for us to impute any allegation of ulterior motive behind such assignment of debt by SCL to MFL, a few facts which were of particular interest are (a) the date of assignment of debt being November 26, 2016, by which period, a few of the sections of the IBC were already notified and implying the impending notification of the rest of the provisions; and (b) initiation of resolution process by the corporate debtor itself on January 23, 2017, implying a certain amount of preparedness on part of the promoters of Synergies Dooray.

11. In re KB Toys 736F.3d 247 (3d Cir. 2013).

12. ICICI Bank Limited v. APS Star Industries Limited Civil Appeal No.8393 OF 2010, decided on September 30, 2010.

13. Section 101(31) : The term "insider" includes—

(A) if the debtor is an individual—

(i) relative of the debtor or of a general partner of the debtor;

(ii) partnership in which the debtor is a general partner;

(iii) general partner of the debtor; or

(iv) corporation of which the debtor is a director, officer, or person in control;

(B) if the debtor is a corporation—

(i) director of the debtor;

(ii) officer of the debtor;

(iii) person in control of the debtor;

(iv) partnership in which the debtor is a general partner;

(v) general partner of the debtor; or

(vi) relative of a general partner, director, officer, or person in control of the debtor;

(i) general partner in the debtor;

(ii) relative of a general partner in, general partner of, or person in control of the debtor;

(iii) partnership in which the debtor is a general partner;

(iv) general partner of the debtor; or

(v) person in control of the debtor;

(D) if the debtor is a municipality, elected official of the debtor or relative of an elected official of the debtor;

(E) affiliate, or insider of an affiliate as if such affiliate were the debtor; and

(F) managing agent of the debtor.

14. See Schubert v. Lucent Techs. Inc. (In re Winstar Commc'ns, Inc.) , 554F.3d 382, 395 (3d Cir.2009).

15. Butler v. David Shaw, Inc , 72 F.3d 437 (4th Cir. 1996) decided on January 3, 1996; In Re Boston Pub. Co., Inc., 209 B.R. 157 (Bankr.d.Mass. 1997) , decided on May 2, 1997; In Re Gilbert, 104 B.R. 206 (Bankr. W.D. Mo. 1989) decided on August 3, 1989.

16. Three Flint Hill Ltd. P'ship v. Prudential Ins. Co. (In re Three Flint Hill Ltd P'ship) , 213 B.R. 292, 299 (D. Md. 1997);

In re Applegate Property, Ltd ., 133 B.R. 827, 833 (Bankr. W.D.Tex.1991); In re Holly Knoll P'ship , 167 B.R. 381, 385 (Bankr. E.D. Pa.1994).

17. US Bank N.A., Trustee, et al., by an through CW Capital Asset Management LLC, solely in its capacity as Special Servicer, Appellant v. The Village at Lakeridge, LLC, Appelee, Rovert Alan Rabkin, Real Party in Interest 814 F.3d 993 (9th Cir. 2016).

18. Chapter 11 under the United States Bankruptcy Code permits reorganization under bankruptcy laws of the United States.

19. See, In re Greer West Inv. Ltd. P'ship), No. 94–15670, 1996 WL 134293 (9th Cir. Mar. 25, 1996) (unpublished) cited in In re The Village at Lakeridge, LLC at page number 1001 at footnote 10.

20. Wake Fores, Inc. v Transamerica Title Ins. [2017 SGCA 51 (Singapore)].

Originally published January 23, 2019.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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08 June 2017

Corporate Insolvency Resolution Process – NCLT clarifies scope of ‘operational debt’

News & Briefings

The National Company Law Tribunal (NCLT) has passed an order on dated 31-3-2017 interpreting the definitions of ‘ operational creditor ’ and ‘ operational debt ’ under the Insolvency and Bankruptcy Code, 2016 (Code). NCLT rejected the application filed under Section 9 of the Code for initiating Corporate Insolvency Resolution Process (CIRP) and held that the remedy lay under the Consumer Protection Act, 1986 and the general law of the land. The matter arose out of non-payment of refund and the interest amount by Respondent per the builder-buyer agreement between the Applicants and the Respondent. The Applicants had booked a residential flat in the Respondent’s construction project and made corresponding payments. The Respondent failed to hand over the possession of the residential flat within the stipulated time period. The Applicant, thus, applied for cancellation of allotment of the residential flat and refund of the deposit with interest.

Contentions:

The Applicants contended that the Respondent must be considered as an ‘operational debtor’ while the Applicants should be considered as ‘operational creditors’ within the meaning of Section 9 read with Section 5(20) and Section 5(21) of the Code. The term ‘operational debt’ should be liberally interpreted to include claims in respect of immovable property. Based on the aforesaid premise, the Applicants contended that they were eligible to initiate CIRP under the Code.

Order of the Tribunal:

NCLT cited and upheld the case of Vinod Awasthy v. A.M.R. Infrastructures Limited (AMR case) in the present case. In the AMR case, the NCLT construed the provisions of Section 9 read with Section 5(20) and Section 5(21) of the Code. Per Section 9(1) of the Code, CIRP can only be initiated by an ‘Operational Creditor’ [see end note 1] against the ‘Corporate Debtor’ when an ‘Operational Debt’ [see end note 2] is owed. The definition of ‘operational debt’ does not state that it also includes any debt other than ‘Financial Debt’ [see end note 3]. Thus, ‘operational debt’ under the Code only covers 4 (four) categories, that is, goods, services, employment and Government dues. NCLT observed that in the present case, the debt had neither arisen out of the provision of goods or services, nor out of employment or the dues which are payable under the statute to the Centre/State Government or local body. The refund and interest sought to be recovered by the Applicants was associated with the delivery of the possession of immovable property, that is, residential flat, which was delayed. The NCLT clarified that the debt, therefore, does not fall within the definition of ‘operational debt’ as defined under Section 5(21) of the Code. NCLT deliberated whether the Applicants could be regarded as ‘operational creditor’ under Section 5(20) of the Code. Observing that according to Section 5(20) of Code, ‘operational creditor’ is a person to whom ‘operational debt’ is owed, it was held that since the refund sought does not fall within the ambit of ‘operational debt’, the Applicants cannot be regarded as ‘operational creditor’. NCLT held that Section 9 read with Section 5(20) and Section 5(21) of the Code cannot be construed so widely to include within its ambit even the cases where the dues are on account of advance made to purchase the flat or a commercial site from a construction company, especially when remedy under the Consumer Protection Act and the general law of the land is available. The application for triggering CIRP was dismissed as the Applicants didn’t fall within the meaning of ‘operational creditor’ as defined under Section 5(20) of the IBC, thereby failing to satisfy the criteria laid down under Section 9 of the IBC for triggering CIRP.

NCLT has provided clarity in respect of the meaning and scope of ‘operational debt’ and ‘operational creditor’. Further, this ruling provides an insight as to which kind of cases will be subject to the Code. Failure to refund money for non-delivery of residential flat or commercial site by a construction company will not fall within the scope of the Code. By way of the present ruling, the NCLT has sought to demarcate the scope of the Code vis-à-vis consumer disputes.

Section 5 (20) of IBC defines "operational creditor" as follows: “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”
Section 5 (21) of IBC defines "operational debt" as follows: “operational debt” means a claim in respect of provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority”
Section 5 (8) of IBC defines "financial debt" as follows: “financial debt means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes— (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on nonrecourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause”

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Debt Assignment-Debt assignment during CIRP

In case of assignment of debt during cirp application pending before nclt, there is no prohibition in the ibc from continuing the proceeding by an assignee – siti networks ltd. vs. assets care and reconstruction enterprises ltd. & anr. – nclat new delhi.

In this case, HDFC Limited filed CP under Section 7 of the IBC seeking initiation of CIRP against the Corporate Debtor. HDFC Ltd. assigned the debt to the Assets Care and Reconstruction Enterprise Ltd. Assets Care and Reconstruction Enterprise Limited filed an I.A. seeking to be substituted as Financial Creditor in place of original Applicant and to be permitted to pursue the C.P. filed by the HDFC Limited. Learned Counsel for the Appellant submits that the assignee could not have been permitted to continue Section 7 proceedings although it is open for the assignee to file a fresh Application under Section 7 which was permissible on the strength of assignment. NCLAT held that the order of the Bengaluru Bench NCLT dated 26.08.2019 on which reliance has been placed by the Appellant cannot be said to be laying down a correct law to be followed as a precedent. As has been observed rightly by the Adjudicating Authority, there is no prohibition in the IBC or any of the Regulations from continuing the proceeding by an assignee. Section 5(7) of the IBC which defines Financial Creditor also includes a person to whom such debt has been legally assigned or transferred to.

In case of assignment of debt during CIRP application pending before NCLT, there is no prohibition in the IBC from continuing the proceeding by an assignee – Siti Networks Ltd. Vs. Assets Care and Reconstruction Enterprises Ltd. & Anr. – NCLAT New Delhi Read Post »

If there is no provision in IBC to deal with a situation, Rule 11 of the NCLAT Rules 2016 cannot be applied which operate in altogether different sphere – Shailaja Vaibhav Patil Vs. CMA Harshad S. Deshpande – NCLAT New Delhi

The resolution plan submitted by M/s Galactico Cooperative Services Ltd. and P.L. Adke were strongly opposed by Nashik Merchant Cooperative Bank Ltd. having 81.45% voting share and a decision was taken in the 10th CoC meeting held on 21.01.2020 for initiation of liquidation proceedings. The RP filed the application under Section 33 of the Code which was allowed on 16.12.2020. It was during the pendency of these appeals, the assignment deed dated 05.04.2022 has come into being as per which the Appellant (City Co-Operative Credit And Capital Limited) has acquired the voting share of Nashik Merchant Cooperative Bank Ltd. and has acquired 100 % voting share. In these circumstances, it is sought to be argued that despite the fact that CoC has become funcutous officio, the order passed under Section 33 of the Code by the Adjudicating Authority be set aside and the matter be remanded back to the CoC for considering the resolution plan of P.L Adke.

If there is no provision in IBC to deal with a situation, Rule 11 of the NCLAT Rules 2016 cannot be applied which operate in altogether different sphere – Shailaja Vaibhav Patil Vs. CMA Harshad S. Deshpande – NCLAT New Delhi Read Post »

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Duty to intimate the RP about the assignment or transfer of debt In case of any assignment or transfer of debt during CIRP, the creditor will provide the RP with the details thereof (such as the terms of assignment and the identity of the assignee) within 7 (seven) days of such assignment or transfer.
Frequently asked questions on regulations on insolvency ...
Yes, the creditor can assign or transfer its debt during the CIRP. The terms of such transfer or assignment must be provided to the IRP. 16. Can a creditor withdraw the application made for the ...
IBBI amends the CIRP regulations to streamline the Insolvency Process
Regulation 28(1) substituted: In the event of debt assignment during the CIRP period, both the assignor and assignee creditor shall within seven days of assignment/transfer provide the IRP/RP the terms of the assignment and the identity of the assignee/transferee.
Debt Assignment-Debt assignment during pending CIRP application
In case of assignment of the debt during the course of pendency of CIRP petition, Assignee is entitled to all rights exercisable under the IBC and enjoys the locus to file the restoration application before the Adjudicating Authority - Raj Radhe Finance Ltd. Vs. Shrinathji Spintx Pvt. Ltd. and Anr. - NCLAT New Delhi. Hon'ble NCLAT held ...
Transfer of illiquid assets and assignment of creditor ...
Sections 5(7) and 5(20) of the IBC stipulate that the assignee of a financial debt or an operational debt shall also be considered as a financial creditor or an operational creditor, respectively.
Assignment of Debts under the Insolvency and Bankruptcy Code
In November 2016, just a week before the Code became operational, Synergies Castings, a sister concern of Synergies Dooray, assigned a major portion of its debt to third-party Millennium Finance by way of three assignment deeds. Note that Synergies Castings had acquired the debt from a consortium of banks by way of a one-time settlement in 2011.
PDF Discussion Paper on measures for increasing the possibility of
1. Timeline for providing information for assignment of debt Regulation 28 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) addresses the procedure and obligations when a debt owed to a creditor is assigned or transferred during the insolvency
Assignment of debt in Corporate Insolvency Resolution Process (CIRP)
Hence, during CIRP, debt assignment can be done. Regulation 28 has to be read with Section 5(7) of the Insolvency and Bankruptcy Code, 2016. As per Section 5(7): "financial creditor" means any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to;"
Corporate Insolvency Resolution Process (CIRP): Key Provisions and
The Corporate Insolvency Resolution Process (CIRP) is a legal mechanism that helps in debt recovery and corporate restructuring. CIRP provides a structured and time-bound process for resolving financial distress in companies and helps in creating a stable and predictable business environment. Legal requirements must comply during Corporate ...
Amendments to the Corporate Insolvency Resolution Process
In case of any assignment or transfer of debt during CIRP, the creditor will provide the RP with the details thereof (such as the terms of assignment and the identity of the assignee) within 7 ...
Cirp by Arc: the Admissibility Under Sarfaesi and Ibc
Now, the State Bank of India filed a company petition CP (IB) No. 1096 of 2018, against the principal borrower, which was admitted by the court on 23.02.2022. Meanwhile, SBI entered into an agreement on 18.01.2021 with respondent number 1 of the appeal, which is CFM Asset Reconstruction Company, assigning the debt owned by the principal ...
IBC Laws
HDFC Limited on 17.02.2022 filed CP under Section 7 of the IBC seeking initiation of CIRP against the Corporate Debtor. On 30.03.2022, notices were issued in Section 7 Application. HDFC Ltd. vide Registered Assignment Deed dated 29.06.2022 assigned the debt of the Corporate Debtor to the Assets Care and Reconstruction Enterprise Limited.
NCLT Delhi: Debt Assignment Deed Cannot Be Challenged In CIRP ...
In conclusion, NCLT noted that the Applicant is a Financial Creditor, the debt in default is a Financial Debt and the same is not barred by limitation, thus, the CIRP against the Corporate Debtor ...
IBC Laws
Assignment of debt during CIRP application pending before NCLT. NCLAT in Siti Networks Ltd. Vs. Assets Care and Reconstruction Enterprises Ltd. & Anr. (2022) ibclaw.in 1034 NCLAT held that there is no prohibition in the IBC or any of the Regulations from continuing the proceeding by an assignee. Section 5(7) of the IBC which defines Financial ...
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Duty to intimate the RP about the assignment or transfer of debt . In case of any assignment o r transfer of debt during CIRP, the creditor will provide the RP with the details thereof (such as the termsof assignment and the identity of the assignee) within ) days of such assignment or 7 (seven transfer. 5.
Related Party Financial Debt under IBC
Related Party Financial Debt under IBC - Exclusion from the CoC and impact of assignment. Khaitan Legal Associates. Global, India August 29 2022. Background. The regime under the Insolvency and ...
All about Corporate Insolvency Resolution Process (CIRP) under IBC, 2016
CIRP is the standard process to initiate the proceeding for a Corporate Debtor under IBC, 2016. It is a recovery cum repair mechanism for the companies to minimise risk for creditors. This mechanism is used when a corporate becomes insolvent and a financial creditor, an operational creditor or the corporate itself proceeds for the resolution.
Initiation Of Corporate Insolvency Resolution Process (CIRP) Under
Under the Insolvency and Bankruptcy Code 2016 (IBC), a Corporate Insolvency Resolution Process (CIRP) may be initiated by operational creditors under Section 9.Who are Operational Creditors under IBC? As per Section 5(20) and (21), Operational Creditors under IBC refer to those to whom any debt is owed by a Corporate Debtor, such debt being recognised as an "operational debt', i.e. one that ...
Assignment Of Claim To Non-Related Party: A Case For Non ...
The CoC occupies an important and probably the most critical position during the CIRP of a corporate debtor. ... it would be unfair for us to impute any allegation of ulterior motive behind such assignment of debt by SCL to MFL, a few facts which were of particular interest are (a) the date of assignment of debt being November 26, 2016, by ...
Going to NCLT by Financial Creditor under Section 7 of the IBC
CIRP can be initiated only if the corporate debtor defaults on a debt that meets or exceeds the minimum threshold value prescribed under Section 4 of the Code[7]. The prevailing threshold is a ...
corporate insolvency resolution process nclt clarifies scope of
The National Company Law Tribunal (NCLT) has passed an order on dated 31-3-2017 interpreting the definitions of 'operational creditor' and 'operational debt' under the Insolvency and Bankruptcy Code, 2016 (Code). NCLT rejected the application filed under Section 9 of the Code for initiating Corporate Insolvency Resolution Process (CIRP) and held that the remedy lay under the Consumer ...
Debt Assignment-Debt assignment during CIRP Archives
CIRP Regulations; Liquidation Regulations; IBC Other Regulations; IBC Rules; ... Bare Act-Commercial Courts Act, 2015; Bare Act-IIAC Act, 2019; Mediation Act, 2023; Weekly Bulletins; Debt Recovery. Case Laws; Case Citation Search; SARFAESI & DRAT Portal; SARFAESI Act; SARFAESI Rules; ... Debt Assignment-Debt assignment during CIRP.
PDF FAQs: Insolvency and Bankruptcy Code, 2016 AUTHORISATION FOR ASSIGNMENT
Panel. For example, the IP included in the Panel for appointments during January - June 30, 2022 should have AFA valid up to June 30, 2022. 10. What are the consequences of not obtaining AFA before undertaking any assignment under the IBC? If the Insolvency Professionals undertake assignments or give consent to undertake assignment

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Assignment of Debts under the Insolvency and Bankruptcy Code

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CIRP BY ARC: THE ADMISSIBILITY UNDER SARFAESI AND IBC

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Corporate Insolvency Resolution Process – NCLT clarifies scope of ‘operational debt’

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Debt Assignment-Debt assignment during CIRP

If there is no provision in IBC to deal with a situation, Rule 11 of the NCLAT Rules 2016 cannot be applied which operate in altogether different sphere – Shailaja Vaibhav Patil Vs. CMA Harshad S. Deshpande – NCLAT New Delhi

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