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INITIATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS UNDER SECTON 10 OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016 |
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INITIATION OF CORPORATE INSOLVENCY RESOLUTION PROCESS UNDER SECTON 10 OF THE INSOLVENCY AND BANKRUPTCY CODE, 2016 |
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Corporate Insolvency Resolution Process (‘CIRP’ for short) against a corporate debtor may be initiated by a financial creditor under Section 7 of the Corporate Insolvency and Bankruptcy Code, 2016 (‘Code’ for Short) or by an operational creditor under Section 9 of the Code. Section 10 of the Code allows a corporate applicant to file an application if the corporate debtor committed a default. Section 5(5) of the Code defines the expression ‘corporate applicant’ as-
Where a Corporate Debtor has committed a default a corporate applicant, shall make an application for initiating the corporate insolvency resolution process against a corporate debtor under section 10 of the Code in Form 6. Special resolution The special resolution is to be by shareholders of the corporate debtor or the resolution passed by at least three-fourth of the total number of partners of the corporate debtor, as the case may be, to approve the filing of the application before the Adjudicating Authority. The special resolution shall be attached with Form 6. The Form No. 6 has three parts. Part I requires to furnish the particulars of the corporate applicant. Part II requires furnishing the particulars of proposed interim resolution professional. Part II requires furnishing of particulars of financial/operational credit, creditor wise. Part I Part I requires to furnish the following information-
(where application is under Chapter IV of Part II of the Code.) Part II
Part III - Particulars of Financial/Operational debt (creditorwise, as applicable)
Declaration Documents to be attached-
Order The Adjudicating Authority shall, within a period of 14 days of the receipt of the application, by an order-
The Adjudicating Authority shall, before rejecting an application, give a notice to the applicant to rectify the defects in his application within 7 days from the date of receipt of such notice from the Adjudicating Authority. The Adjudicating Authority after admission of the application filed by a corporate applicant under Section 10 of the Code shall, by an order,
Commencement of CIRP The corporate insolvency resolution process shall commence from the date of admission of the application. The corporate insolvency resolution process shall be completed within a period of 180 days from the date of admission of the application to initiate such process. The resolution professional shall file an application to the Adjudicating Authority to extend the period of the corporate insolvency resolution process beyond 180 days, if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of 66% per cent of the voting shares. If the Adjudicating Authority is satisfied that the subject matter of the case is such that corporate insolvency resolution process cannot be completed within 182 days, it may by order extend the duration of such process beyond 180 by such further period as it thinks fit, but not exceeding ninety days. Any extension of the period of corporate insolvency resolution process shall not be granted more than once. The corporate insolvency resolution process shall mandatorily be completed within a period of 330 days from the insolvency commencement date, including any extension of the period of corporate insolvency resolution process granted under this section and the time taken in legal proceedings in relation to such resolution process of the corporate debtor. Case laws M/S. INNOVENTIVE INDUSTRIES LTD. VERSUS ICICI BANK & ANR - 2017 (6) TMI 959 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, MUMBAI, the National Company Law Appellate Tribunal held that the National Company Law Tribunal has discretion to reject the debtor’s application under Section 10 on the ground where the debtor has made an application for CIRP with malicious intention to take advance of the moratorium provisions of the Code. M/S. UNIGREEN GLOBAL PRIVATE LIMITED VERSUS PUNJAB NATIONAL BANK, CORPORATION BANK, VIJAYA BANK AND ORIENTAL BANK OF COMMERCE - 2018 (1) TMI 505 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI, it was held that if the corporate debtors do not disclose all the facts including the facts in relation to the debts owed by it to its creditors and were trying to misuse the provisions of the Code for only taking benefit of moratorium on actions against the corporate and its creditors, the application for CIRP under section 10 of the Code would be rejected. IN RE : M/S. ETERNAL MOTORS PVT. LTD. - 2022 (8) TMI 1454 - NATIONAL COMPANY LAW TRIBUNAL AHMEDABAD - the Adjudicating Authority held that the application filed under Section 10 of the Code can be rejected only on a ground that if the application is incomplete or any disciplinary proceeding is pending against the proposed IRP. In this case no disciplinary proceeding is pending against the proposed IRP i.e. Mr. Manish Santosh Buchasia. Then the Adjudicating Authority checked whether the application is defect or not. It checked the provisional balance sheet of the corporate debtor as on 30.06.2021 and it found that the corporate person is unable to pay the debt. A special resolution by the Board of Director of the Corporate Person is produced as Annexure-D wherein all shareholders attended that meeting. The Adjudicating Authority found that the application is defect free. However the financial creditors objected the admission on the ground that it is fraudulent initiation of CIRP to get benefit of moratorium in order to halt their recovery proceeding filed in Debt Recovery Tribunal. The Adjudicating Authority held that only because any recovery proceedings are pending against the Corporate Person is not a ground to reject the application. There is no material before the Adjudicating Authority to show that the Corporate Person has filed this application with some ulterior motive. There is no dispute to the fact that the debt is more than Rs.1 crore payable by the Corporate Person to the various Banks and the Corporate Person committed default in paying the same. The Adjudicating Authority held that it is a fit case where the Corporate Person can be admitted in CIRP.
By: Mr. M. GOVINDARAJAN - October 31, 2023
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