Answer ... The laws governing restructuring and insolvency in India are as follows:

• Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: This empowers banks or financial institutions with a presence in India or which have been notified by the government of India to recover on non-performing assets without court intervention.
• Companies Act, 2013: This provides for voluntary schemes of arrangement and compromise between debtors and their creditors.
• Insolvency and Bankruptcy Code, 2016: This provides a time-bound process for resolving insolvency and liquidation proceedings for all limited liability entities except financial service providers.
• Banking Regulations Act, 1948: This sets out directions for the resolution or restructuring of distressed loans outside the framework of the Insolvency and Bankruptcy Code.

Answer ... At present, no international/cross border instruments have effect in India. However, a committee has been established by the government to provide recommendations on the acceptance of the UNCITRAL Model Law on Cross-Border Insolvency, 1997. While the government is considering entering into bilateral agreements with foreign governments to implement the provisions of the Insolvency and Bankruptcy Code, 2016, thus far no such bilateral agreements have been entered into.

Answer ... There are no special regimes that apply in specific sectors. The Insolvency and Bankruptcy Code, 2016 applies to all corporate entities, with the exception of financial service entities.

The government has notified some rules with respect to the general framework for insolvency and liquidation proceedings involving financial service providers, with the exception of banks. These rules will apply subject to notification and modification from the government. The purpose of this framework is to provide a temporary mechanism until insolvency legislation for banks and other financial service providers has been introduced.

Answer ... The Insolvency and Bankruptcy Code, 2016 was introduced in response to changing market needs. The regime under the code is perceived to be more creditor friendly than its predecessor, which was seen as cumbersome and debtor friendly.

Recent developments in the regime have introduced a procedure whereby, once a debtor has been added to the list of insolvency, its board of directors is suspended and the management of the debtor is handled independently by an insolvency professional who works under the supervision of the creditors’ committee and the National Company Law Tribunal (NCLT).

Answer ... The government introduced the Insolvency and Bankruptcy Code to enhance the restructuring and insolvency regime in India. While certain provisions of the code have been amended to ensure its smooth functioning, it has quickly created a new specialised ecosystem relating to the insolvency and restructuring of corporate entities.

A special separate tribunal, the NCLT, has been established to handle insolvency and liquidation proceedings for corporate entities.

Given this dynamic environment, various voluntary schemes of arrangement have been introduced to promote the overall growth and development of the sector.

Answer ... The principal forms of security interest that are taken over assets by a secured creditor include:

• mortgages;
• hypothecation charges;
• assignments;
• liens;
• grants;
• indentures of trust;
• trust receipts;
• transfers; and
• conveyances executed as security for financial assistance granted or to be granted to the borrower by the secured creditor.

In the case of immovable property, a security interest may be created by:

• a simple mortgage;
• a mortgage by conditional sale;
• a usufructuary mortgage (where the mortgagor delivers the possession and right to enjoy income of and from the property to the mortgagee);
• an equitable mortgage; or
• a mortgage by deposit of the title deeds.

In case of movable property, a security interest can be created by instruments such as:

• pledge;
• hypothecation;
• charge; and
• lien.

Answer ... The enforcement of a security interest is subject to the terms and nature of the security and the creditor. A security interest can be enforced with or without the intervention of the court or by operation of law.

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 sets out a procedure for the enforcement of a security directly by a lender without the intervention of the court. Likewise, in case of a security over movable assets, enforcement is subject to the terms of the hypothecation.

However, in the case of certain kinds of mortgages – such as an equitable mortgage – the mortgagor must first apply to the court for a decree to sell the property for recovery of the debt.

The enforcement of security with the intervention of the court entails additional costs and time, and often serves as an impediment to enforcement.

Answer ... Yes, informal workouts between the lender and the debtor are possible. In relation to informal workout arrangements, the Reserve Bank of India (RBI) issues circulars and directions to banks and non-banking finance companies.

The RBI’s most recent circular, dated 7 June 2019, addresses the prudential framework for the resolution of stressed assets. Banks and certain types of non-banking finance companies have been given broad powers under this circular to restructure accounts and formulate a resolution plan for the debtor, which can include provisions on actions such as:

• the sale of exposures to other entities/investors;
• a change in ownership; and
• a change in existing debt terms.

The framework requires lenders to detect early signs of stress in loan accounts and to take prompt corrective action in the event of default. Lenders can decide on a resolution strategy for such defaulting accounts following a review of a 30-day default. Lenders must enter into an inter-creditor agreement which outlines the ground rules for finalising and implementing a resolution plan. Any decision reached by lenders representing 75% of the total outstanding credit facilities in terms of value and 60% in terms of number is binding on all lenders.

The circular also calls for the resolution strategy to be implemented within 180 days of the conclusion of the review period. If the resolution plan is not implemented within this timeframe or within 365 days of its inception, all lenders must make additional provisions.

Answer ... In India, formal restructuring proceedings can be initiated under the Insolvency and Bankruptcy Code or the Companies Act.

Insolvency and Bankruptcy Code: The Insolvency and Bankruptcy Code is India’s primary formal restructuring framework. It establishes a two-stage procedure for dealing with insolvency. A corporate insolvency resolution process begins once a corporate debtor is admitted to insolvency by the National Company Law Tribunal (NCLT). When this process begins, an interim resolution professional (similar to an administrator) is appointed to oversee the resolution process. The powers of the debtor’s board of directors are suspended and transferred to the interim resolution professional. A creditors’ committee, comprised of the debtor’s creditors, is then formed by the interim resolution professional. The creditors’ committee can either retain the interim resolution professional or appoint another insolvency professional to serve as the resolution professional.

The resolution professional will invite qualified individuals to submit a resolution plan (ie, a plan for the resolution or restructuring of the debtor). The creditors’ committee will evaluate all resolution plans and may approve them with 66% of the voting share. If the creditors’ committee approves a resolution plan, it will be presented to the NCLT for final approval. The entire corporate insolvency resolution process should be completed within 330 days (including any time taken for litigation). If no resolution is approved during this time, the debtor will be forced to liquidate.

The advantages of Insolvency and Bankruptcy Code restructuring proceedings include the following:

• A moratorium is available during the corporate insolvency resolution process.
• The debtor’s consent is not required for the restructuring. The creditors’ committee has the authority to approve the restructuring or resolution plan.
• Any eligible person that has not been disqualified under the Insolvency and Bankruptcy Code may submit a resolution plan.
• Once the NCLT has approved the resolution plan, it is binding on all of the debtor’s creditors and stakeholders (not just the creditors that approved the plan). As a result, the resolution plan can extinguish past liabilities and allow the debtor to start over with a clean slate.
• The proceedings are time limited.

The disadvantages include:

• the practical challenges of reaching a resolution within a relatively short timeframe;
• ongoing delays at the NCLT;
• regulatory uncertainty surrounding the process and the effect of the resolution plan (primarily because the law is new and there is a lack of judicial precedent); and
• strict criteria that disqualify certain parties from submitting a resolution plan.

Companies Act: A debtor may reorganise under the Companies Act by formulating a scheme of arrangement or compromise. The scheme can be:

• between the debtor and any class of creditors; or
• between the debtor and any class of shareholders.

A scheme may include a compromise or arrangement with creditors as well as shareholders. The scheme also requires NCLT approval, which is obtained by submitting an application in the prescribed format, together with the scheme and prescribed documents. Furthermore, the NCLT may order the convening of meetings of creditors or classes of creditors, or shareholders or classes of shareholders. Government authorities and regulators can also make representations to the NCLT about the scheme. If a majority of persons representing three-quarters of the creditors or shareholders approve the scheme at the NCLT-convened meetings, a petition will be filed with the NCLT, which may then be sanctioned by an order.

From the debtor’s perspective, the advantages of restructuring proceedings under the Companies Act include the following:

• This is a voluntary mechanism in which the debtor proposes the scheme.
• There are no predefined disqualifications; nor is there a competitive bidding process (which may result in a takeover of the debtor by a third party).
• The law governing schemes is well established, so there is little regulatory uncertainty.
• Once a scheme is approved, it is binding on all creditors (whose debts are being restructured).

The disadvantages include:

• the lack of a moratorium;
• the relatively high approval threshold;
• the absence of a time-bound process; and
• the inability to achieve a cross-class cramdown.

Answer ... The basic criterion for initiating a corporate insolvency resolution process under the Insolvency and Bankruptcy Code is ‘debt’ and ‘default’ exceeding INR 10 million. Any of the following can start the process.

Financial creditors: Financial creditors are those which have extended debtor financing. In the event of a payment default in excess of INR 10 million, a financial creditor may apply to the NCLT’s jurisdictional bench (in the prescribed form) to initiate a corporate insolvency resolution process. To succeed:

• the application must be complete; and
• the NCLT must be satisfied of:
• • the existence of a financial debt; and
  • a default in payment.

Operational creditors: Operational creditors are individuals or entities to which the debtor owes operational debt (including claims for goods and services, employment debts and debts due to the government). An operational creditor must issue a prescribed notice to the debtor in the event of a payment default in excess of INR 10 million. If the debtor fails to pay after receiving the notice or fails to file a ‘notice of dispute,’ the operational creditor may apply to the NCLT’s jurisdictional bench (in a prescribed form) to begin the corporate insolvency resolution process. To succeed:

• the application must be complete; and
• the NCLT must be satisfied of:
• • the existence of an operational debt;
  • a default in payment; and
  • the absence of any ‘dispute’ regarding payment.

Corporate applicants: These include the debtor, its shareholders, and certain officers who meet certain criteria. The applicant can initiate a corporate insolvency resolution process by submitting an application to the NCLT’s jurisdictional bench (in the prescribed form). The commencement of proceedings requires 75% shareholder approval (via shareholder resolution). To succeed:

• the application must be complete; and
• the NCLT must be convinced of:
• • the existence of an operational or financial debt; and
  • a default in payment of the same (exceeding INR 10 million).

Companies Act: Any creditor or shareholder, as well as the debtor, can apply to the NCLT to propose a scheme of arrangement or compromise between the debtor and its creditors. An application must be made to the NCLT in the prescribed form (along with the prescribed documents) requesting that meetings of creditors or shareholders be convened. The NCLT will then convene a meeting of creditors and appoint a chairperson. The meeting will be announced to creditors and government officials. If a majority of those present agree to the scheme, representing three-quarters of the creditors or shareholders, as the case may be, another petition will be filed with the NCLT, which can then sanction the scheme after hearing the parties.

Answer ... Under the Insolvency and Bankruptcy Code, once the NCLT has admitted an application for the initiation of a corporate insolvency resolution process, this has the following effects:

• A moratorium is declared;
• An interim resolution professional is appointed to take charge of the debtor’s affairs and take custody of its assets;
• All powers of the board of directors are suspended and the resolution professional runs the business of the debtor on a going-concern basis; and
• The resolution professional appoints a committee of creditors after making a public statement inviting claims from creditors.

Answer ... Once the moratorium comes into effect, the following activities are prohibited:

• any new institution of suits or any continuation of pending suits or proceedings against the debtor;
• any transfer, encumbrance, alienation or disposal of the debtor’s assets;
• any action to foreclose, recover or enforce any security interest created by the debtor and any other action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act; and
• the recovery of any property occupied by or in possession of the debtor by the owner or the lessor.

Answer ... The process set out under the Insolvency and Bankruptcy Code is as follows:

• The corporate insolvency resolution process is initiated by order of the NCLT.
• The interim resolution professional is appointed.
• The interim resolution professional appoints a creditors’ committee within 23 days of commencement of the corporate insolvency resolution process.
• The creditors’ committee has an option to continue with the interim resolution professional or to replace him or her at the first meeting.
• An eligibility criterion is set for applicants proposing to submit a resolution plan for the debtor.
• An invitation to submit resolution plans is sent by the resolution professional on behalf of the creditors’ committee within 75 days.
• Anyone that is eligible to submit a plan can submit an expression of interest showing its preliminary interest.
• Due diligence is conducted on the applicants by the resolution professional to ascertain whether it is eligible and a list of prospective resolution applicants is issued.
• An information memorandum and other relevant documents are issued by the resolution professional within 105 days.
• All the plans submitted must comply with the Insolvency and Bankruptcy Code and will be sent to the creditors’ committee for consideration.
• The creditors’ committee can assess the viability of the resolution plans submitted and approve them, if deemed fit.
• The resolution professional will submit the approved plan to the NCLT.
• The NCLT will then review and approve the plan.

The whole process must be completed within 180 days, but this can be extended to 270 days and then to 330 days (including all extensions and the time taken in legal proceedings). The Supreme Court recently ruled that the NCLT can extend the 330-day timeframe in exceptional cases.

Companies Act: The procedure under the Companies Act is as follows:

• A scheme of compromise or arrangement is proposed between the debtor and creditors, and the NCLT is approached through an application to convene a creditors’ meeting.
• The NCLT orders a meeting of the creditors or the respective classes of creditors and appoints a chairperson for the same.
• All creditors or creditors in the appropriate classes are notified of the meetings. The central government, income tax and other statutory authorities that could be impacted by the plan are also notified.
• The scheme may be approved at the creditors’ meeting by a majority of creditors representing three-quarters of the total value of claims or the classes of creditors.
• A petition is filed to the NCLT, which may approve the scheme after considering any objections.

Answer ... (a) Debtor

Insolvency and Bankruptcy Code: Under the Insolvency and Bankruptcy Code, no role, rights, or obligations are outlined. Once the debtor has declared insolvency, the board of directors is suspended and the (interim) resolution professional is given management authority. As a result, the (interim) resolution professional represents the debtor in the corporate insolvency resolution process for all intents and purposes.

Companies Act: Under the Companies Act, the debtor suggests the plan and submits applications to the NCLT for its approval, together with any appropriate reports, statements and other documentation. The debtor is in charge of managing the entire procedure for getting the scheme approved, including notifying creditors.

(b) Directors of the debtor

Insolvency and Bankruptcy Code: Under the Insolvency and Bankruptcy Code, the powers of the board of directors are suspended once the debtor has been admitted to a corporate insolvency resolution process and are exercised by the (interim) resolution professional. To help the (interim) resolution expert manage the debtor’s affairs, the directors must offer full cooperation and support. Although they cannot vote, the directors can attend the creditors’ committee meeting and can offer feedback on the proposed resolution plans.

Companies Act: Under the Companies Act, there are no prescriptive roles, rights or obligations, other than the requirement that the debtor’s board of directors approve the scheme.

(c) Shareholders of the debtor

The shareholders have no prescribed role, rights or responsibilities.

(d) Secured creditors

Insolvency and Bankruptcy Code: Under the Insolvency and Bankruptcy Code, no specific role, rights or obligations are set forth for secured creditors. A moratorium is in place during the insolvency resolution process, meaning that no creditor may act or enforce its security during that time. Instead, the (interim) resolution professional will receive the creditors’ claims, which will subsequently be addressed in the resolution plan. Each financial creditor is represented on the creditors’ committee (including secured and unsecured financial creditors). Each financial creditor (secured and unsecured, excluding a related party to the creditor) is entitled to one vote per voting share in the creditors’ committee. To guarantee the smooth operation of the process, all creditors are expected to cooperate with and support the (interim) resolution professional.

Companies Act: Under the Companies Act, classes of creditors will normally be established by the NCLT, and secured and unsecured creditors will be called to meetings. A class of creditors holding 75% or more of the value of the class must approve the plan in order for it to pass. However, the scheme may be opposed by a person that owns at least 10% of the shares or has debts totalling at least 5% of the total outstanding debt.

(e) Unsecured creditors

Unsecured creditors have no prescribed role, rights or responsibilities.

(f) Employees

Insolvency and Bankruptcy Code: Under the Insolvency and Bankruptcy Code, the (interim) resolution professional is entitled to receive claims from employees, which will be addressed in the resolution plan. Employees must report to the (interim) resolution professional and offer all support and cooperation required for that person to manage the debtor’s affairs.

Companies Act: Employees have no prescribed role, rights or responsibilities.

(g) Pension creditors

Pension creditors have no prescribed role, rights or responsibilities.

(h) Insolvency office holder

Insolvency and Bankruptcy Code: Under the Insolvency and Bankruptcy Code, the insolvency office holder:

• invites, collates and verifies the creditors’ claims;
• manages the debtor’s affairs and runs the company on a going-concern basis;
• takes full control and custody of the debtor’s assets;
• constitutes the creditors’ committee and conducts meetings;
• prepares the information memorandum and invites prospective applicants to submit resolution plans for the debtor;
• reviews the resolution plans for compliance with the Insolvency and Bankruptcy Code and presents them to the creditors’ committee;
• files applications for the avoidance of transactions; and
• submits the resolution plan approved by the creditors’ committee to the NCLT.

Companies Act: There is no insolvency office holder in respect of a scheme under the Companies Act.

(i) Court

Insolvency and Bankruptcy Code: The NCLT is the adjudicating authority under the Insolvency and Bankruptcy Code. The role of the NCLT is:

• to admit the petition for the commencement of the corporate insolvency resolution process;
• to appoint the interim resolution professional;
• to pass orders on various applications that may be filed by the interim resolution professional under the Insolvency and Bankruptcy Code; and
• to approve or reject the resolution plan approved by the creditors’ committee.

The NCLT can also entertain and dispose of the following:

• any application by or against the debtor;
• any claim made by or against the debtor, including claims by or against any of its subsidiaries in India; and
• any question of priorities or any question of law or facts arising from or in relation to the corporate insolvency resolution process.

Companies Act: Under the Companies Act, the NCLT is the sanctioning body for the scheme’s approval. The NCLT convenes meetings of the creditors or classes of creditors in response to a request for compromise made through the scheme and designates a chairperson for the meetings. Additionally, it hears petitions for and against the plan; and it has the authority to order changes to the scheme.

The appellate body that hears appeals against NCLT rulings is the National Company Law Appellate Tribunal (NCLAT). It is possible to appeal an NCLAT ruling to the Supreme Court of India.

Answer ... Insolvency and Bankruptcy Code: The Insolvency and Bankruptcy Code divides creditors into two categories for the purposes of the corporate insolvency resolution process:

• financial creditors; and
• operational creditors.

All financial creditors (secured and unsecured) make up the creditors’ committee. With 66% of the voting share, the creditors’ committee votes to support the resolution plan. Each financial creditor is given a voting share based on the total amount of debt owed to that creditor. The resolution plan does not need the approval of any other creditor or class of creditors, aside from the creditors’ committee. All creditors and stakeholders, including dissenting creditors and operational creditors (which are not a part of the creditors’ committee), must abide by the resolution plan that the creditors’ committee and the NCLT have approved.

Companies Act: Under the Companies Act, meetings of several classes of creditors are conducted in order to accept a strategy of compromise with creditors, and each class must agree on the plan. Secured and unsecured creditors generally constitute separate classes, even though the Companies Act does not address class composition. The necessary conditions for voting are a majority in number and three-quarters of the value. A cross-class cramdown is not possible since each class of creditors must approve the proposal.

Answer ... Yes.

Answer ... The liquidator may use the clause for a contract disclaimer in the liquidation proceedings. Contracts cannot, however, be renounced during the corporate insolvency resolution process. In certain circumstances, burdensome contracts can be cancelled via a resolution plan under the Insolvency and Bankruptcy Code; but the situation is not fully clear in this regard.

Contract disclaimers are not permitted in restructuring actions through a scheme under the Companies Act.

Answer ... This will depend on the terms and condition under which the restructuring is carried out. In certain cases, the Supreme Court of India has permitted the continuation of third-party liabilities.

Answer ... Yes, under the Insolvency and Bankruptcy Code, providers of new money during the corporate insolvency resolution process enjoy some sort of priority of payment. The new money is taken to comprise of a part of the cost of the proceedings; and under the code, these costs must be paid in priority over all other costs by the resolution applicant.

Answer ... Once a corporate insolvency resolution process has been initiated under the code, the interim resolution professional will request the submission of resolution plans. Interested resolution applicants will submit their resolution plans for scrutiny by the creditors’ committee. The resolution plan may be approved or denied by the committee. If the resolution plan is approved by a voting share of 66%, it will be presented to the NCLT for its approval. If such approval is obtained, the resolution plan will be approved; however, if the resolution plan is not approved by 66% voting share by the creditors’ committee or if the NCLT does not approve it, an order of liquidation will be issued by the NCLT against the debtor, after which liquidation proceedings will commence.

Answer ... The Insolvency and Bankruptcy Code of 2016 provides a comprehensive legal framework relating to the reorganisation and insolvency of corporate persons, partnership firms and individuals. Under the code, insolvency proceedings in India can be commenced based on an application before the adjudicating authority by either:

• a creditor or creditors (involuntary); or
• the debtor itself (voluntary).

Accordingly, as per Section 6 of the code, where any corporate debtor commits a default, a corporate insolvency resolution process can be initiated against it by:

• a financial creditor;
• an operational creditor; or
• the corporate debtor itself.

Similarly, as per Part III of the code, which is yet to be notified, an insolvency resolution process can be initiated against individuals and partnership firms by

• the debtor, either personally or through a resolution professional; or
• a creditor, either personally or jointly or through a resolution professional.

Further, the government recently notified certain provisions of the code relating to the initiation of insolvency proceedings against the personal guarantors of corporate debtors, which came into effect on 1 December 2019.

Answer ... Under the Insolvency and Bankruptcy Code, corporate insolvency proceedings can be commenced based on an application moved before the adjudicating authority either by the creditor/creditors or by the corporate debtor itself on the occurrence of a default on a debt amounting to not less than INR 10 million. Section 6 of the code provides that where any corporate debtor commits a default, a corporate insolvency resolution process can be initiated against it by:

• a financial creditor;
• an operational creditor; or
• the corporate debtor on its own initiative.

Sections 7, 9 and 10 of the code lay down the detailed procedure to be followed for initiating corporate insolvency proceedings by a financial creditor, an operation creditor and the corporate debtor respectively. The National Company Law Tribunal (NCLT) with jurisdiction over the registered office of the corporate debtor is the adjudicating authority for commencement of the corporate insolvency resolution process.

Under Section 16 of the code, the adjudicating authority is empowered to appoint an interim resolution professional following the commencement of the corporate insolvency process. Where the application for commencement of the corporate insolvency resolution process is made by a financial creditor, an operational creditor or the corporate debtor, as the case may be, the resolution professional – as proposed respectively in the application – will be appointed as the interim resolution professional by the adjudicating authority, as long as no disciplinary proceedings are pending against him or her. If no name is proposed by the operational creditor, the adjudicating authority will make a reference to the Insolvency and Bankruptcy Board of India to recommend a person to be appointed as the interim resolution professional.

Answer ... Under the Insolvency and Bankruptcy Code, insolvency proceedings against corporate persons commence from the date on which the application for the commencement of a corporate insolvency resolution process is admitted by the adjudicating authority (ie, the NCLT).

Section 13 of the code sets out the actions to be taken by the NCLT once an application for a corporate insolvency resolution process has been admitted. Accordingly, the NCLT will issue an order:

• declaring a moratorium;
• issuing a public announcement for the initiation of a corporate insolvency resolution process and calling for the submission of claims; and
• appointing an interim resolution professional in the manner as provided under the code.

Answer ... On the commencement date of the insolvency proceedings, the NCLT will issue an order declaring a moratorium on all of the following acts:

• the institution of suits or the continuation of pending suits or proceedings against the corporate debtor, including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;
• the transfer, encumbrance, alienation or disposal by the corporate debtor of any of its assets or any legal right or beneficial interest therein;
• any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property, including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; and
• the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

However, the code excludes from the purview of the moratorium:

• surety in a contract of guarantee to the debtor; and
• any other transaction notified by the central government in consultation with any financial regulator.

Answer ... The Insolvency and Bankruptcy Code prescribes a timeframe of 330 days for completion of the corporate insolvency resolution process. The process that is ordinarily followed in the case of corporate insolvency resolution is as follows:

• An application for commencement of the corporate insolvency process is submitted to the NCLT by a financial creditor, an operational creditor or the corporate debtor itself. The date on which the application is admitted is regarded as the date of commencement of the corporate insolvency process.
• The NCLT imposes a moratorium and appoints an interim resolution professional. The interim resolution professional takes control of the management of the debtor’s affairs. The interim resolution professional will also issue a public announcement of the corporate insolvency process and invite all stakeholders to submit claims in the manner specified under the code.
• Once the claims of all stakeholders have been submitted and the financial position of the debtor has been determined, the interim resolution professional will constitute a creditors’ committee consisting of all financial creditors of the debtor.
• At their first meeting, to be held within seven days of the constitution of the creditors’ committee, the committee by a majority vote of 66% will decide to appoint the interim resolution professional as the resolution professional or propose the name of another insolvency professional to be appointed as the resolution professional.
• The resolution professional will prepare an information memorandum for the purpose of enabling the eligible resolution applicants to prepare a viable resolution plan.
• Once the resolution plans have been submitted by the resolution applicants, the resolution professional will check their compliance with the Insolvency and Bankruptcy Code and subsequently submit all compliant plans to the creditors’ committee for its consideration.
• After reviewing the various resolution plans submitted to it, the creditors’ committee will approve the resolution plan that it considers the most commercially viable for the debtor by a vote of not less than 66% of the voting share of the financial creditors.
• The NCLT will review the resolution plan approved by the creditors’ committee to ensure that it is compliant with the conditions enumerated under the various provisions of the code. If the resolution plan is found to be compliant with the code, it will be approved and held to be binding on the corporate debtor and all the stakeholders.
• If the NCLT does not sanction the resolution plan or, the creditors’ committee is unable to finalise a resolution plan, the NCLT will order the liquidation of the corporate debtor.

Answer ... (a) Debtor

The Insolvency and Bankruptcy Code prescribes no role, rights or responsibilities for a debtor. An interim resolution professional is appointed by the NCLT to manage the affairs of the debtor and take custody and control of the company. Hence, the debtor is represented by the (interim) resolution professional for all purposes during the insolvency proceedings.

(b) Directors of the debtor

After admitting the application for initiation of a corporate insolvency resolution process, an interim resolution professional is appointed to take charge of the management of the company. The powers of the directors of the debtor are suspended and vested in the interim resolution professional, who runs the business as a going concern. The directors assist the interim resolution professional in running the business as a going concern.

The directors have a right to attend the meeting of committee of creditors but without any voting rights. They can give suggestions on the submitted resolution plan.

(c) Shareholders of the debtor

The Insolvency and Bankruptcy Code prescribes no role, rights or responsibilities for shareholders of debtors.

(d) Secured creditors

The Insolvency and Bankruptcy Code prescribes no separate role, rights or responsibilities for secured creditors.

The role of secured creditors is limited to:

• submitting their claim to the interim resolution professional, to be dealt with in the resolution plan;
• participating in the meeting of the creditors’ committee and voting according to their voting share;
• approving or rejecting the resolution plan; and
• providing full assistance and cooperation to the interim resolution professional in conducting the corporate insolvency resolution process.

(e) Unsecured creditors

Unsecured creditors have the right to:

• submit their claims to the interim resolution professional, to be dealt with in the resolution plan;
• participate in the meeting of the creditors’ committee and vote according to their voting share;
• approve or reject the resolution plan; and
• provide full assistance and cooperation to the interim resolution professional in conducting the corporate insolvency resolution process.

(f) Employees

The Insolvency and Bankruptcy Code provides that employees can submit their claims to the interim resolution professional, to be dealt with in the resolution plan. As per the code, they have a duty to assist and cooperate with the interim resolution professional for the smooth management of the company.

(g) Pension creditors

The Insolvency and Bankruptcy Code prescribes no separate rights, roles or responsibilities for pension creditors.

(h) Insolvency office holder

Under the Insolvency and Bankruptcy Code, the NCLT appoints an interim resolution professional and resolution professional to carry out the insolvency proceedings, who will have certain roles, rights and responsibilities as follows:

• to manage the affairs of the debtor;
• to constitute the creditors’ committee;
• to take control of the debtor’s assets;
• to invite, verify and collate claims from creditors;
• to prepare memoranda and invite resolution applicants to submit resolution plans;
• to review the resolution plans to ensure that they comply with the Insolvency and Bankruptcy Code; and
• to submit to the adjudicating authority the resolution plan approved by the creditors’ committee.

(i) Court

The adjudicating authority under the Insolvency and Bankruptcy Code is the NCLT and the appellate authority is the National Company Law Appellate Tribunal (NCLAT). The NCLAT’s decisions can be appealed to the Supreme Court.

The NCLT has the following roles, rights and responsibilities:

• to admit/reject the application for the initiation of a corporate insolvency resolution process;
• to appoint an interim resolution professional;
• to pass orders on various applications filed by the (interim) resolution professional;
• to approve or reject the resolution plan approved by the creditors’ committee; and
• to entertain any application or claim by or against the debtor and question of law or fact in relation to the corporate insolvency resolution process.

Answer ... Once an application for a corporate insolvency resolution has been admitted, the interim resolution professional appointed by the adjudicating authority will issue – immediately or within three days of the date of his or her appointment – a public announcement on the initiation of a corporate insolvency resolution process inviting the submission of claims by all stakeholders in accordance with the form specified under the code, along with valid supporting documents. While ordinarily stakeholders are given 14 days to file their claims, in case of any delay this period can be extended to up to 90 days from the insolvency commencement date.

The Schedule to the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 provides various forms for filing of claims by different stakeholders as follows:

Answer ... While the code does not rank claims of stakeholders in any particular order of priority, it does stipulate conditions to be met by each resolution plan submitted to the creditors’ committee for approval. In this regard, Section 30(2) of the code provides that the resolution professional must examine each resolution plan received to confirm that it:

• provides for the payment of the insolvency resolution process costs in priority to the payment of other debts of the corporate debtor; and
• provides for the payment of the debts of operational creditors which must not be less than the amount to be paid to the operational creditors in the event of liquidation of the corporate debtor.

Further, Regulation 38 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 sets out the mandatory contents of the resolution plan, which must ensure, among other things that the amounts payable to operational creditors and to financial creditors that did not vote in favour of the resolution plan will be paid in priority to the amounts payable to financial creditors that voted in favour of the plan.

Answer ... There are no express provisions under the Insolvency and Bankruptcy Code in this regard; hence, the insolvency proceedings do not affect contracts, unless insolvency constitutes specific grounds for termination under the contract. Otherwise, the counterparty cannot terminate the contract. However, the insolvency professional may reject a contract if it relates to the following transactions:

• preference transactions;
• transactions at an undervalue;
• transactions to defraud creditors; or
• extortionate credit transactions.

The liquidator can proceed towards the disclaimer of contracts, but there are no express provisions under the Insolvency and Bankruptcy Code in this regard.

Answer ... Yes, they can be challenged and set aside if they relate to any of the following.

Preferential transactions: A preferential transaction is where property is transferred by the debtor for the benefit of creditors, sureties or guarantors for, or on account of any antecedent debt or liabilities owed by the debtor, where such transfer has the effect of putting the creditor, surety or guarantor in a more beneficial position than it would have been in had a distribution of assets in liquidation taken. place.

A defence is available for transactions which:

• create security for new value; or
• are in the ordinary course of business of the debtor or the transferee.

The lookback period is:

• one year prior to the commencement of the corporate insolvency resolution process if made to an unrelated party; or
• two years if made to a related party.

Undervalued transactions: These are transactions where the debtor transfers its assets for a consideration which is undervalued.

A defence is available for transactions that took place in the ordinary course of business of the debtor.

The lookback period is:

• one year prior to the commencement of the corporate insolvency resolution process if made to an unrelated party; or
• two years if made to a related party.

Transactions defrauding creditors: These arise where the debtor entered into an undervalued transaction to keep assets beyond the reach of any person entitled to make a claim against the debtor.

No defences or lookback periods are prescribed by the Insolvency and Bankruptcy Code.

Extortionate credit transactions: These are transactions where the debtor must make exorbitant payments in respect of any credit provided or that are unconscionable under the principles of law relating to contracts.

A defence is available where credit is extended by any financial services provider which is compliant with the law.

The lookback period is two years prior to the insolvency commencement date.

Answer ... Insolvency proceedings may end either in:

• the approval of the resolution plan by the NCLT, resulting in the revival of the debtor; or
• the failure of the resolution process, resulting in the commencement of liquidation.

If the NCLT approves the resolution plan, the creditors are paid under the terms of the plan. However, if the debtor goes into liquidation, the creditors are paid in accordance with the waterfall mechanism set out in the Insolvency and Bankruptcy Code. Once the liquidation estate has been liquidated and distributions made to stakeholders, the liquidator applies to the NCLT for dissolution of the debtor. Once the debtor has been dissolved, no liabilities survive.

In case of a resolution of insolvency, the survival of liabilities depends on the terms of the resolution plan. A resolution plan will typically provide for the extinguishment of past liabilities (except payments proposed under the plan) and the order passed by the NCLT in respect of the same will be binding on the stakeholders.

Answer ... Under the Insolvency and Bankruptcy Code, foreign debtors cannot avail of restructuring as the Insolvency and Bankruptcy Code applies only to companies incorporated in India. A separate framework on cross-border insolvency has been issued by the government, but has not yet been notified.

Answer ... No, the UNCITRAL Model Law on Cross-Border Insolvency and the UNCITRAL Model Law on Recognition and Enforcement of Insolvency- Related Judgments have not been adopted in India. However, the government has established an expert committee to provide input on adopting the UNCITRAL Model Law on Cross-Border Insolvency and is now actively considering this input.

Answer ... The Insolvency and Bankruptcy Code, 2016 includes limited and narrow provisions on giving effect to foreign insolvency or restructuring proceedings and/or granting assistance in such proceedings, as follows:

• Section 234: The central government may enter into an agreement with the government of any country outside India for the purpose of enforcing the provisions of the code. The central government may issue a notification setting out the conditions which will govern the application of the code’s provisions to the assets or property of a corporate debtor which is situated outside India.
• Section 235: If, in the course of insolvency resolution proceedings or liquidation or bankruptcy proceedings under the code, the resolution professional, liquidator or bankruptcy trustee is of the opinion that assets of the corporate debtor are situated outside India in a country with which India has a reciprocal arrangements under Section 234 of the code, an application may be made to the adjudicating authority that evidence or action be taken against such assets in connection with the proceedings.

Answer ... Cross-border insolvency proceedings arise where either:

• the assets of the corporate debtor are situated outside India in a foreign country; or
• multiple insolvency proceedings are initiated in different jurisdictions outside India.

The purpose of the cross-border insolvency mechanism is to regulate insolvency proceedings which operate outside the realm of the domestic jurisdiction.

In 2019, Jet Airways (India) Limited became the first Indian company to be subject to cross-border insolvency proceedings. The National Company Law Tribunal (NCLT), in a precedent which furthered the evolution of the insolvency laws in India, directed that joint corporate insolvency proceedings be conducted.

The corporate insolvency resolution process of Jet Airways began on 20 June 2019, after the State Bank of India filed a Section 7 application against the airline. The adjudicating authority was then informed that a Dutch court had already commenced insolvency proceedings and that a Dutch bankruptcy administrator had been appointed to oversee the assets of Jet Airways based in the Netherlands. These were carried out in response to a petition for bankruptcy filed by two European creditors against Jet Airways for alleged unpaid debts totalling about INR 2.8 billion.

In accordance with these directives, the Indian resolution professional and the Dutch administrator submitted an agreement that they had reached regarding the international aspects of Jet Airways’ insolvency, which was approved by the NCLAT in a historic order. Notably, the Dutch administrator was even permitted to attend the sessions of Jet Airways’ creditors’ committee as an observer.

Answer ... The Company Law treats each company as a separate legal entity, with its own distinctive legal existence, rights, duties, liabilities and powers. The Insolvency and Bankruptcy Code is designed for a single entity and envisages a framework to deal with the insolvency and liquidation of corporate entities on a standalone basis; it neither accommodates nor contains any provisions on group insolvency. However, by way of judicial pronouncements, the courts have issued their view on group proceedings.

In the landmark case of State Bank of India v Videocon Industries Ltd, a group of banks led by the State Bank of India, which was the common creditor, filed an application to the Mumbai Bench of the NCLT seeking the substantive consolidation of 15 Videocon companies into a single corporate insolvency resolution process to create a common debtor. Thirteen of the 15 Videocon firms were granted substantial consolidation by the NCLT due to factors such as common control, directors, assets and liabilities.

Answer ... The 1997 UNCITRAL Model Law on Cross-Border Bankruptcy offers governments guidance on cross-border insolvency legislation. Strong recommendations have been made for the adoption of the UNCITRAL Model Law as a comprehensive approach for the resolution of cross-border insolvency difficulties in India. The UNCITRAL Model Law provides for effective means of execution and reduces the challenges associated with dealing with cross-border insolvency proceedings.

In order to better understand and recommend the laws and regulatory framework required for the successful implementation of the proposed cross-border insolvency provisions in the Insolvency and Bankruptcy Code, the Ministry of Corporate Affairs has established a special committee. However, there have been few updates on the committee’s progress in incorporating such provisions into the code.

Answer ... The debtor’s centre of main interests (COMI) is determined by following the UNCITRAL Model Law, based on the presumption that the registered office of the corporate debtor is the COMI in India.

Answer ... Much like domestic creditors, foreign creditors also have the right to avail of the provisions of the Insolvency and Bankruptcy Code, including by initiating and filing an application for a corporate insolvency resolution process under Section 7 or Section 9, depending on whether the foreign creditor is a corporate or operational creditor.

Answer ... The primary duty of the directors of a company under the Insolvency and Bankruptcy Code is to exercise due diligence and not to indulge in any fraudulent or wrongful trading pertaining to the acts and omissions of the directors in the zone of insolvency.

If a director of a company is engaged in any wrongful or fraudulent acts or omissions, the resolution professional can approach the National Company Law Tribunal (NCLT) to obtain an order against him or her to contribute towards the debtor’s assets where:

• before the commencement of the insolvency commencement date, the director was aware or should have been aware that there was no possible avenue to avoid the commencement of a corporate insolvency resolution process against the corporate debtor; and
• the potential loss incurred by the creditors could have been avoided had the director exercised due diligence.

Answer ... Yes, there are circumstances in which the directors of a company can be held personally liable for payment of the debtor’s assets – for example, where a director:

• knowingly participates in any fraudulent transactions or is involved in wrongful trading; or
• has failed to exercise due diligence and reduce the potential losses of the debtor.

Answer ... In case of any fraudulent activities in which a third party has knowingly participated, that third party may be ordered by the NCLT to contribute towards the debtor’s assets. Thus, where a party is found to have participated in any fraudulent activities, it will be liable to such extent and manner as the NCLT orders.

Answer ... Yes, the government adopted various initiatives to temporarily modify the law during the COVID-19 pandemic. The government announced the ad hoc suspension of Sections 7, 9 and 10 of the Insolvency and Bankruptcy Code by inserting Section 10A (suspension of the initiation of a corporate insolvency resolution process) in the code. Sections 7, 9 and 10 deal with the initiation of a corporate insolvency resolution process.

This was a temporary suspension which aimed to avoid the initiation of fresh insolvency proceedings against debtors for at least that year, in order to keep debts which accrued due to the pandemic outside the purview of the code.

A new Regulation 40C was also inserted in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations which categorically provided an exemption from the obligation to comply with the timeframes set out in the regulations for the duration of the lockdown period.

Answer ... Pre-pack sales of assets are permitted for micro, small and medium-sized enterprises (MSMEs). The pre-packaged insolvency resolution process came into effect in April 2021, in order to provide relief to MSMEs which had been affected by the pandemic. Under the pre-pack mechanism, it is possible to sell assets free and clear of security.

Answer ... The term ‘credit bidding’ is not prevalent in the Insolvency and Bankruptcy Code, although the concept is mentioned in Section 52 of the code. This provides that a secured creditor in liquidation proceedings may realise its security interest by:

• informing the liquidator of such security interest; and
• identifying the asset subject to such security interest to be realised.

Answer ... The Indian insolvency regime is still relatively new and is continuously evolving. In this quickly changing and dynamic environment, judgments are essential to understand the interpretation of the law. However, the recent judgments issued by tribunals and courts indicate that interpretations of the law are changing and a gap is starting to emerge between the previous understanding and the current approach reflected in the recent orders. This gap will only be resolved in time as more judgments are issued by tribunals and courts.

As the Indian insolvency regime is still in its infancy, developments continue to occur, and new laws on cross-border insolvency and the pre-packaged insolvency resolution process are expected in the coming months.

Answer ... The corporate insolvency resolution process under the Insolvency and Bankruptcy Code is essential in making a final attempt to sustain the debtor. For the restructuring process to run smoothly, it is very important to bear in mind the following:

• The goal at all times is to assist and determine a suitable mechanism whereby the debtor may survive.
• The specified timeframes must always be adhered to. The process in itself is time consuming and thus if the timeframes are not properly observed, the very objective of reviving the debtor becomes futile.
• The interest of all stakeholders must be taken into account.
• The process must be carried out in a transparent and orderly manner.
• Court intervention is limited.
• The procedure must be followed accurately so that no challenges are raised during the process.

If the abovementioned points are observed, the corporate insolvency resolution process should proceed in a smooth and efficient manner.

Co-Authored by: Ashmi Mohan, Sidhant Pandita and Vatsala Pandey