Application Under Insolvency and Bankruptcy Code
Introduction : To avoid clumsy process which is prescribe under Chapter-20 of Companies Act, 2013; which is relating to liquidation of company. Government has come out with Insolvency and Bankruptcy Code, 2016. Due to this now the process of liquidation takes place in rapid and fruitful manner. It is always a major concern for the creditor that what if his money becomes bad debts, or what if an assessee has defaulted in paying the amount taken by him from any person in form of loan or from any Financial Institution/NBFC/Bank. What is the remedy they can exercise against the assessee after implementation of Insolvency and Bankruptcy Code, 2016? In this article we will be discussing what are is insolvency, bankruptcy, liquidation and who can make the application under Insolvency and Bankruptcy Code, 2016.
Definition of various terms used:
- For Corporates, LLP and Personal Guarantees related to Corporate Debtors, National Company Law Tribunal will be the adjudicating authority. Appeal can be made against the order of National Company Law Tribunal (NCLT) at National Company Law Appellate Tribunal (NCLAT) and thereafter appeal can be made to Supreme Court.
- For Individuals and Partnership Firms (Including persons not covered above), Debt Recovery Tribunal (DRT) will be adjudicating authority. Appeal can be made against the order of Debt Recovery Tribunal (DRT) at Debt Recovery Appellate Tribunal (DRAT) and thereafter appeal can be made to Supreme Court.
Before moving further, it is important to know, when an application made under Insolvency and Bankruptcy Code, 2016 is liable to be rejected;
It shall be noted that a creditor is eligible to apply on in case when amount due from corporate debtor is more than 1 Lakh Rupees.
Now, in this there are lot many terms have been used such as Corporate Debtor, Financial Creditor, Operational Creditor which is clarified as under;
- Financial Creditor: Financial Creditor means any person to whom financial debt is owned; i.e. It includes all the person whose financial debt has been owed by the personor the person to whom such debt is legally assigned or transferred.
Financial Debt: It includes all type of instruments and any financial assistance provided.
Illustration: Mr. J has given loan to Mr. D; amount of loan is Rs. 25,00,000/-. Whether Mr. J is financial creditor?
Yes, Mr. J will be treated as financial creditor.
What if in the given case Mr. J has assigned such receivable to D2exchange agency? Whether D2exchange agency will be termed as financial creditor?
Yes, D2exchange will be termed as financial creditor as in definition it has already been prescribed any person to whom debt has ben legally assigned or transferred will also be treated as financial creditor.
- Operational Creditor : Operational Creditor means any person to whom operational debt is owned; i.e. It includes all the person whose operational debt has been owed by the person or the person to whom such debt is legally assigned or transferred.
Claim which is arising due to provision of goods or services or in respect of employment; or any payment arising due to any law for time being in force and which is payable to central government or state government or local authority.
Therefore, if any dues of employees are pending or any dues of person who has supplied goods or service to the entity or ant taxes which are payable to government will fall within the preview of operational creditor.
- Corporate Debtor:Corporate debtor means corporate person who owes (liable to pay) any person.
- Corporate Person:Corporate person means any Company, Limited Liability Partnership (LLP), It also includes any entity who is incorporated with limited liability but it does not include any financial service provider. Therefore, this definition does not include Banks, Non-Banking financial institute or any other financial service provider.
Process of Insolvency and Bankruptcy Code, 2016;
Manner in which application is to be made:
Application by Financial Creditor:
Any financial creditor may either itself or jointly with other financial creditors or any other person on behalf of financial creditor (Guardian, Trustee, Person authorized by board of directors of company).
Along with application in Form 1, financial creditor is required to provide
- Any evidence confirming non-payment by the corporate debtor.
- Name of the resolution professional proposed to act as an interim resolution professional.
- Any information which has been demanded by Insolvency and Bankruptcy Board.
Application by Operational Creditor:
In this case firstly, creditor is required to serve demand notice(as specified in Form 3/Form 4)along with copy of invoice demanding payment from corporate debtor.
Corporate debtor has to intimate operational creditor about any dispute which exists in relation to payment or amount which has been paid by corporate debtor.
If after expiry of 10 days operational creditor does not receive his payment or any communication relating to dispute then in that case he may file and application to adjudicating authority.
Along with application in Form 5 operational creditor is required to provide
- Copy of invoice and demand notice delivered to corporate debtor.
- Affidavit, determining that no notice of dispute is given by corporate debtor.
- Any other documents/evidence confirming no receipt of payment; operational creditor may obtain certificate from financial institute, certifying non-receipt of payment.
- Operational creditor may propose the name of a resolution professional to act as an interim resolution professional.
Application by Corporate Debtor (Suo-Moto):
Corporate debtor may Suo-moto file an application for initiating corporate insolvency process with adjudicating authority.
Along with application in Form 6, following documents are required to be provided
- Special resolution passed by shareholder of Corporate Debtor or resolution passed by ¾th partner of corporate debtor.
- Information relating to books of accounts.
- Name of proposed Interim Resolution Professional.
- Any other particulars require by Insolvency and Bankruptcy Board (IBB).