Initiation of corporate insolvency resolution process by corporate applicant [ Section 10 ] - Insolvency Resolution And Liquidation For Corporate Persons - IBC

Initiation of corporate insolvency resolution process by corporate applicant. Corporate application [ Section 10(1) ] Section 10 is the provision for voluntary initiation of a CIRP by the CD or relevant persons who may be authorized or who are in charge of the CD. Section 10(1) of the IBC states that, where a CD has committed a default, a corporate applicant may file an application with the AA to initiate a CIRP of the CD. A corporate applicant is defined in section 5(5) of the IBC as: (a) the CD; (b) a member or partner of the CD who is authorized to make an application for a CIRP under the constitutional document of the CD; (c) an individual in charge of managing the operations and resources of the CD; or (d) a person who has control and supervision over the financial affairs of the CD. Filling of Application Form [ Section 10(2) ] The application under section 10(1) shall be filed in such form, containing such particulars and in such manner and accompanied with such fee as may be prescribed. Ap p l i c a t i on by corporate applicant Rule 7 The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 The application shall be made in Form 6, accompanied with documents and records required therein and as specified in the IBBI ( Insolvency Resolution Process for Corporate Persons) Regulation, 2016. 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, accompanied with documents and records required therein and as specified in the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The applicant shall serve a copy of the application to the Board by the registered post or speed post or by hand electronic means before filing with Adjudicating Authority. Documents to be annexed with the application [ section 10(3) ] The corporate applicant shall, along with the application, furnish- (a) the information relating to its books of account and such other documents for such period as may be specified; (b) the information relating to the resolution professional proposed to be appointed as an interim resolution professional; and (c) the special resolution passed 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, approving filing of the application. Fee for Application The application should be submitted by the corporate applicant to the AA along with a demand draft of 25,000 Indian rupees favoring the Pay and Accounts Officer, Ministry of Corporate Affairs, payable in Mumbai, New Delhi, Kolkata, or Chennai Admission or Rejection of Application by the Adjudicating authority [ Section 10(4) ] As in the case of an OC, once the corporate applicant has furnished the prescribed information, the AA shall, under section 10(4) of the IBC, The Adjudicating Authority shall, within a period of 14 days of the receipt of the application, by an order- admit the application , if it is complete; or and no disciplinary proceeding is pending against the proposed resolution professional reject the application , if it is incomplete or any disciplinary proceeding is pending against the proposed resolution professional. Time Limit to rectify the defects in application Provided that Adjudicating Authority shall, before rejecting an application, give a notice to the applicant to rectify the defects in his application within seven days from the date of receipt of such notice from the Adjudicating Authority. Date of Commencement of CIRP [ Section 10(5) ] The corporate insolvency resolution process shall commence from the date of admission of the application under section 10(4) of this section. Applicability of the Limitation Act [ Section 238A ] The provisions of the Limitation Act, 1963 shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the NCLAT the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal. Thus, applications under sections 7, 9, or 10 cannot be admitted for time-barred debts. Relevant case Law In B.K. Educational Services Private Limited Vs. Parag Gupta and Associates - SC dated 11.10.2018 the Supreme Court observed that the intention of lawmakers, from the very beginning, was to apply the Limitation Act, 1963, to the NCLT and the NCLAT while deciding applications filed under section 7 and section 9 of the IBC and appeals. The relevant section of the Limitation act is section 137. No doubt, the right to sue accrues when a default occurs. But if the default has occurred more than three years before the date of filing the application, it would be barred by section 137, except in cases where the delay can be condoned under section 5 of the Limitation Act. It also held that section 238A of the Code should apply the provisions of the Limitation Act, as far as may be. Therefore, where periods of limitation have been laid down in the IBC, they will apply notwithstanding anything to the contrary contained in the Limitation Act. In Babulal Vardharji Gurjar Vs. Veer Gurjar Aluminium Industries Private Limited Another - SC dated 14.08.2020 The Supreme Court examined the limitation period for filing section 7 applications and observed: The period of limitation for an application to initiate a CIRP under section 7 of the IBC is governed by article 137 of the Limitation Act and is, therefore, three years from the date when the right to apply accrues. The right to apply under the IBC accrues on the date when the default occurs. If the default had occurred over three years prior to the date of filing the application, the application would be time barred, save and except in those cases where, on facts, the delay in filing may be condoned. An application under section 7 of the IBC is not for enforcing mortgage liability and article 62 of the Limitation Act does not apply to this application. The date of the IBC s coming into force on 01.12.2016 is irrelevant to the triggering of any limitation period for the purposes of the IBC. In this case, the court observed that the FC never made any arguments other than stating the date of default as 08.07.2011 in the application. Therefore, no case for extending the period of limitation is available to be examined. In other words, even if section 18 of the Limitation Act (which allows the period of limitation to be extended if the defaulter had acknowledged the debt) and the principles thereof were applicable, they would not apply to the application under consideration, looking at the averment made in the application regarding default and for want of any other averment in regard to acknowledgement. The court annulled the insolvency proceedings, holding that because the application of the FC is barred by limitation, no proceedings undertaken after the order of admission could be of any effect. In M/s. Unigreen Global Private Limited Vs. Punjab National Bank and Others - NCLAT dated 01.12.2017 The NCLAT examined the scope of discretion available to an AA in admitting or rejecting a section 10 application. The NCLAT held that the AA must admit an application filed by a CD to initiate a CIRP if it is satisfied that: the default has occurred, the application is complete, and the CD is not barred under section 11 of the IBC. Facts unrelated to or beyond the requirement of the IBC or the forms prescribed cannot amount to suppression of facts and cannot be looked at by the AA for denying admission. Export-Import Bank of India Anr. Vs. Astonfield Solar (Gujarat) Pvt. Ltd. Anr. NCLAT dated 04.12.2018 The shareholder has a right to decide whether approving or disapproving the decision be proceeded with the CIRP under section 10 of the Code.