Corporate restructuring under IBC
-By Ms. Himanshi Sanjaykumar Sharma*,
B.com, LL.B., LL.M. student (Maharashtra national law university, Aurangabad)
Before the Insolvency and Bankruptcy Code, 2016 there was no singular law or rules governing insolvency and bankruptcy. Even though there existed many laws as well as forums to deal with these subjects, there was always a need of proper and well-organized framework in the above mentioned are. The Code of 2016 came into force on 1st December 2016 with an intention to govern the proceedings pertaining to insolvency or liquidation or both. Corporate restructuring helps a corporate entity to change or to rearrange the structure of the entity. The need for such kind of restructuring arises when the entity is suffering from financial crisis. The process of corporate restructuring helps to remove and repair all financial crisis by enhancing company’s performance. The object of the Code is to save such drowning companies or entities which are running on losses and unable to get on edge by themselves. Prior to the said code, such entities or companies or enterprises used to simply become insolvent. They had no chance of revival. However, the main objective of the suggested code is to see whether the company or enterprise or entity can revive by making any structural changes in the governance of the company. So that those companies who stand a chance of revival can be revived and can be helped to stand in the times of falling apart. Present paper focuses on discusses history of Insolvency legislations in India, Legal framework of the code, pillars of the code, process of corporate restructuring, latest amendment in the code and adjacent regulations pertaining to the process of restructuring, judicial approach to the process etc. which provides detailed view of Corporate Restructuring under the code.
Corporate restructuring, insolvency resolution, insolvency and bankruptcy, resolution process, debtor, COC, Company.
The term insolvency and bankruptcy has very similar meanings in general terms. The term insolvency relates to the circumstances in which the enterprise is unable to pay its own debts or the enterprise is basically not sufficient to pay its debts from its own assets. On the other hand, bankruptcy pertains to the legal status of a person or a company, who is unable to pay its dues or debts to the creditors. To declare a person bankrupt whole legal process has to initiate against the enterprise. The process pertaining to restructuring is vital in the times of crisis of financial nature. The process of restructuring is called CIRP process i.e., Corporate Insolvency Resolution Process. Under this process management people of the enterprise which is undergoing restructuring process appoints a financial as well as a legal expert to redesign the whole scenario of the company. Such appointed experts sought assistance in negotiation as well as transaction agreements. Another form of corporate restructuring involves change in ownership in company. An example of this kind of restructuring can be mergers, acquisition, takeover etc. Before introduction of the said code of 2016 the liquidation process or winding up process in case of insolvency or bankruptcy of an enterprise used to take place under the Companies Act, 2013. Under which a liquidator was used to appointed. However, now the process is almost a sunset process and only option for liquidating a company is either through a voluntary liquidation or through the Insolvency and Bankruptcy Code, 2016 and there exist no other direct route to liquidation process. The process that has been mentioned in the code is CIRP process. Which includes two stages. Under stage one, if revival of the company or enterprise is possible, then the restructuring and under stage two, if there are no chances of revival, then Liquidation. To undergo the CIRP process the company would be required to file an application under section 7 or section 9 or section 10 of the code.
Very early in the year of 1970, there existed the term restructuring. In the year of 1970, the Reserve Bank of India issued guidelines which was earlier the instruction only but it was eventually turned as guidelines pertaining to restructuring of financial aspects of a company in the circumstances of natural calamities and financial complications. In those guidelines, the Reserve Bank stated that any company if undergoing financial crisis and if they voluntarily want to undergo corporate restructuring and only 75% creditors are in favor of the proposed restructuring, all of them are considered as in favor of the modification. Such restructuring is only to be done by those enterprises which had taken loans from various creditors and the amount of debt that is due on the enterprise shall be 100 million or more to be eligible for corporate restructuring.
In case where the enterprise is a bank or any other financial institution, it can be eligible for corporate restructuring if it contains 20% share in loan of the company. In the year of 2012 there were 292 cases of corporate restructuring involving nearly 1.5 lakh crore rupees which were increased to 401 cases of corporate restructuring which involved more than 2 lakh crores.
Then after in 2015 the draft of IBC was made to provide a code which contain whole provisions of restructuring.
2. Legal Framework:
IBC itself including the rules as well as the regulations is a complete code in itself for the purpose of resolution of insolvency as well as liquidation process. Under this code, there exists a body namely Insolvency and Bankruptcy Board of India which regulates the implementation under the code. NCLT namely National Company Law Tribunal is the adjudicating authority under the code and NCLAT namely National Company Law Appellate Tribunal is the Appellate authority under the code with respect to CIRP process. The code does not deal with financial institutions like banks because for that another act namely SARFAESI Act, 2001 (Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest) is enacted.
3. Pillars of the Code:
3.1 Resolution Professionals
3.2 Insolvency Professional Agents
3.3 Information utilities
3.5 Adjudicating authorities
3.1 Resolution Professionals:
Under the code earlier the cap of filing for corporate restructuring was one lakh which was increased in the times of covid and was set for the default of minimum value of 1 crore or more. Such default enables company’s financial creditor or operational creditor or the company itself to initiate the process of insolvency resolution.
After initiating the process NCLT appoints an unbiased person which is known as Interim Resolution Professional. Who may be after such period if he deems fit can also be appointed as resolution professional if the appointment is confirmed by the company and he shall be the one managing corporate affairs to redirect corporate governance so that financial deficit of the company may be cured. Such Interim resolution professional may be a Chartered Accountant or an advocate or Company Secretary or a tax consultant etc. which shall be appointed according to the need of the company.
The resolution professional (RP) is obligated to conduct restructuring as corporate insolvency resolution process under the code. It is the duty of the RP to be unbiased and be neutral.
In case of Essar Steel India Ltd. V. Satish Kumar Gupta, the Supreme court of India stated that RP is accountable to organize and manage the matters of the corporate debtor. It is an obligation on them to organize various meetings with committee of creditors and decide the plans for how to reorganize the corporate structure and collect, the claims of all the creditors for payment by the RP and negotiate with committee of creditors (COC) to reach to a solution of the financial debt lying on the company.
3.2 Insolvency Professional Agents:
Insolvency Professional Agents or Agency are those persons or enterprises or organizations or individuals that are registered with the IBBI of India as given under section 201 of the code.
The above-mentioned definition is given under section 3(20) of the code. These agencies develop standards as well as code of ethics to appoint regulation professionals. Such kind of agencies include Institute of Chartered Accountants of India, Institute of Company Secretary of India and Institute of Cost and Management Accountants. All of the above institutes are already registered with the board namely IBBI as Insolvency Professional Agency.
The functions of such agencies include laying down the standards for resolution professionals so accurately that the RP are able to reconstruct the company, granting or suspending the membership to RP. Rights, privileges interests of RP. Monitor and Suspend or cancel the membership. Publishing list of members and their performance etc.7
3.3 Information utilities:
Information utilities are those professional organizations which assemble, collect, gather, authenticate and distribute economic data from the enterprises or firms and publish. The information available on Information utilities are very accurate and trustworthy and it shows that the investment is secured.
Section 210 of the code deals with registration of the information utilities. Other than that section 209 to section 216 of the code are the provisions which deals with Information Utilities. It is a professional organization. Normally a financial position of the company is important to be understood before investing in the companies. Sometimes the final accounts of the companies are unable to provide clear picture of the original financial position of the company. Also, such information is available to income tax department. But such department only provide the information under Right to Information. In these situation, Information Utilities comes to provide all information of a company on publicly accessible manner so that the deficiency can be overcome.
The first step for beginning of the corporate insolvency process or corporate restructuring it is very important to understand the current scenario of the company. Which includes information relating to status of assets of the company, which are the current contracts in the company which are in force. It is important that all the shareholders of the company are able to access corporate debtor’s true financial position. Failing which the process of insolvency resolution gets tainted.
To deal with all of these problems, Bankruptcy Law Reforms Committee (BLRC) came up with these provisions as solution. Thus, on one domain all the credit information of a company is available. These are all electronic records that helps committee of creditors to assess the validity of debtors.
Therefore, the code has special provision for creation of such kind of organizations or industries as mandatory in the form of information utilities.
3.4 Insolvency and Bankruptcy Board of India:
The IBBI is the vital and significant institute for CIRP Process. The board creates multiple rules and regulations, it also controls agencies and the resolution professionals that are involved in resolution process. Proposed board was established under the code of insolvency and bankruptcy on 1st October, 2016. It has the foremost obligation to make laws pertaining to corporate restructuring or resolution of insolvency for corporate debtors, partnership firms as well as an individual. Also, the board shall make rules relating to procedure of insolvency resolution, institution as well as professionals. Till now there are three legislations for above purpose has been enacted by the board. Which contains as following:
I. Regulation for insolvency professionals.
II. Regulation for Insolvency Agencies.
III. Model Bye laws and Governing Boards of Insolvency Professional Agencies.
These regulations have common and simple aim to create a framework for proper and voluntary liquidation of any corporate debtor. The board contains wide powers to control and manage insolvency and bankruptcy in India which includes registration of the resolution professionals, insolvency agencies, fees, standards for agencies as well as professionals, inspection and control over those entities, etc.
3.5 Adjudicating authorities:
NCLT, established under section 408 of the company’s act, 2013, acts as an adjudicating authority for the purpose of instituting CIRP process or liquidation process. Application to initiate the CIRP process is to be filed in NCLT having appropriate influence over the dwelling where the enumerated headquarters of the debtor is situated. In the same manner, voluntary liquidation process shall be filed under the said Tribunal having appropriate jurisdiction of the place of registered office of the corporate person. Appeal from such NCLT shall be instituted to NCLAT, being an Appellate Tribunal.
4. Corporate Insolvency Resolution Process or Corporate Restructuring process:
The process of insolvency resolution is a tool with the help of which finances of the creditors can be recovered. In the situation when any corporate person becomes insolvent, the creditors of the corporate entity as well as the corporate person himself can initiate the process of restructuring under the code. Present code has sole purpose of saving the interest of creditors against the loss. In this process, licensed insolvency resolution professionals take actions to improve the position of the corporate entity in the market by improving financial stability of the company.
Under the proposed code, the process may be originated by financial creditors or operational creditor or by the corporate debtor himself. Such application shall be filed to Adjudicating Authority of NCLT.
The Adjudicating Authority of NCLT after receiving the application shall decide whether the CIRP process can be beneficial to the corporate debtor or not or whether to admit the application for CIRP process or not. Such decision of the Adjudicating Authority is to be taken within 14 working days. Failing which it shall be considered that the application has been rejected. However, if Adjudicating Authority thinks that the application can be accepted, it shall communicate the decision of acceptance of the application to the party within 7 working days.
The most important thing to note here is that the date of acceptance of the application by the Adjudicating Authority shall be considered as the date on which the CIRP process is started.
4.1 Application to NCLT given by Financial Creditors: (Section 7)
Section 5(7) of the code gives definition of the term “Financial Creditors” which states that financial debtor is a person to whom debt of financial nature is owed or a person who is legally assigned for such debt. Following which, Section 5(8) of the code gives definition of the term “Financial debt”.
The first thing that comes under the Corporate Insolvency Resolution Process is the declaration of the default. After such declaration of default, the application is made to Adjudicating Authority and such authority on receiving a receipt on application shall accept the application to start the CIRP process.
After the admission of corporate debtors to resolution process, an interim resolution professional is appointed by the Adjudicating Authority of NCLT. Such interim resolution professional is such person who shall be proposed or recommended by the financial creditors. After which the whole control of the corporate debtor or company shifts from the Board of Directors to Interim Resolution Professional. Such interim resolution professional shall endure till the appointment of next. Following such appointment, the NCLT declares that particular corporate entity is undergoing the Corporate Resolution Process.
After such declaration, the moratorium period for the corporate debtor starts. Under section 13 of the code, provision pertaining to Declaration of Moratorium is given. The said section is enacted under this code with specific purpose that after commencement of the CIRP process, a claim period of 180 days should be there. During such period of 180 days, all the suits and legal proceeding etc. against the Corporate Debtor is prohibited. Such time is provided so that the corporate debtor can revive and the process of resolving of any issue and creating a whole new governance for corporate debtor is done during this period. Therefore, no fresh suit can be filed during such moratorium period.
After which the verification and analysis stage comes. During such stage IRP is supposed to access all the information of the corporate debtor pertaining to assets as well as liabilities, business operation, financial and operational payments for past couple of years. Also, IRP shall examine all the claims which are made by the financial creditors after which IRP constitutes a Committee of Creditors (COC). COC include all the financial creditors. However, the voting shares of the financial creditors admitted into committee of creditors are in the proportion of the debt they hold against the corporate debtor.
Within seven working days from the formation of COC for financial creditors, they shall decide whether they want to continue the CIRP process with such elected interim resolution professional or they want to replace him with such other resolution professional. The committee of creditors shall communicate such decision to the Adjudicating Authority within seven working days. Such decision shall be taken by vote of 66% of voting shares.
It shall be the duty of the resolution professional that the assets of the corporate debtor are very well preserved. He shall also keep the business of the corporate debtor continue. He shall attend all COC meetings. However, COC can anytime change resolution professional by creating 66% of voting shares.
The resolution professional is obligated to study and examine all the resolution plans and adopt one which ensure all the payment of debts of corporate debtor as well as which also provides for fees or cost of the CIRP process. Such plan is to be submitted to the COC for further approval. The COC shall approve the plan by at least 66% of voting share and following which the resolution professional shall submit it to Adjudicating Authority. This whole process beginning CIRP shall be completed within 60 days in addition to 180 days of moratorium period. However, additional period of 90 days can be provided by the Adjudicating Authority which concludes that the process should be completed within maximum period of 330 days.
When the proposed resolution plan is approved within the specified period as mentioned above by National Company Law Tribunal, it becomes binding in nature on corporate debtor, its members, employees, creditors as well as stakeholders that are involved in such resolution plan. However, in case where the resolution professional or COC fails to reach any such resolution plan, the adjudicating authority shall order for liquidation of the corporate debtor. To which the Company of Creditors may approve. After such approval, COC appoints a liquidator to set off all the assets of the corporate debtor and distribute among stakeholders.
4.2 Application to NCLT given by operational creditors: [Section 9]
When the corporate debtor makes any kind of default in payment of operational creditor, the creditor can initiate Corporate Insolvency Resolution Process. Section 5(20) of the code defines the term operational creditor. The section states that operational debtor shall be the person who owes operational debt. Following which Section 5(21) of the code defines the term “operational debt”.
When the default of the corporate debtor is declared, the operational creditor is obligated to send a demand notice under section 8 of the code, along with the copy of the invoice which shall be sent to the corporate debtors at the registered office or by hand or by post with acknowledgement along or electronic mail service.
The corporate debtor shall within ten working days from receiving the demand notice, bring attested copy of repayment details or existence of any dispute. If the corporate debtor accepts such notice, he shall pay those debt in single payment. Filing which the operational creditor becomes eligible to file an application of initiation of the resolution process under section 9.
The next step of the process is to submit documents and evidence in the tribunal before the adjudicating authority. Adjudicating Authority of NCLT shall within 14 days of receipt of CIRP process application, can approve or dismiss the application. However, before rejecting the proposed application, Adjudicating Authority is obligated to provide an applicant a notice with respect to rectification of any kind of defect within 7 working days from the date of receipt of such notice the CIRP process shall be said to be started from the very date on which the application has been accepted under section 5(9) of the code.
Also, the operational debtor has power that he may propose a resolution professional. However, such power of is not compulsory to be exercised by him as it is in case of financial debtors. But in case where the operational creditor does not propose or fails to propose any resolution professional, NCLT shall appoint one on behalf of the operational creditor and thereby refer it to Insolvency and Bankruptcy Board of India.
Proposed process is all that is included under the process of CIRP instituted by the operational creditors.
4.3 Application to NCLT given by Corporate Debtor: [Section 10]
The corporate debtor also has the right that he can file for Insolvency Resolution Process by himself under section 10 of the code. However, the process of such corporate resolution process remains same as it is provided under section 7 of the code.
5. Latest Amendments due to COVID-19 Pandemic:
Indian government announced nationwide lock down due to COVID-19 virus pandemic on 25th March 2020. Because of which various business and companies all over the Indian economy suffered. These situations instigated Insolvency and Bankruptcy Board of India to issue such measures which can help all companies and enterprises in such pandemic situation. According to quarterly newsletter issued IBBI stated that on the date of 31st Dec 2019 there were approx. 1961 entities undergoing CIRP process under the code. But because of lockdown declared all over the country it became almost impossible for stakeholders to get involved in the process or to participate in CIRP or even to perform their functions within time as provided under the code for completion of CIRP.
To protect them various amendments were made by the government of India. Different relaxations were introduced under different laws to protect various sectors of economy from ongoing pandemic. Which are as below:
5.1 Increase in minimum threshold:
Government of India by virtue of its power as provided under section 4 of the code issued a notification on 24th of March 2020. Under this notification the minimum threshold of which earlier amounted to 1lakh was increased to 1 Crore INR. In addition to this, Ministry of Finance issued a press release on the same date in which it clarified the object behind changing minimum threshold under the code. They explained that the object behind taking such step is that, such amendment can help in minimization of filing of the application for CIRP process of a corporate debtor having debt between 1Lkah to 1 Crore i.e., medium and small enterprises.
5. 2 Amendment under CIRP Regulations:
A new regulation i.e., regulation 40C was introduced to Insolvency and Bankruptcy Board of India (Insolvency Resolution for Corporate Persons) Regulations, 2016 (CIRP Regulation) on 29th March 2020. Impugned newly added regulation provided for exclusion of the period containing lockdown imposed by Central Government due to COVID-19. Provided that it shall be subject to the provision set out in the code.
Regulation 40B of CIRP Regulations provides for filing of various forms which provide all information regarding life cycle of resolution process of a corporate debtor. Such forms are obligated to be filled by the resolution professional or interim resolution professional as the case may be. The deadline for submission of such form was extended up to 30th October 2020
5. 3 Amendment under Liquidation Regulation:
In the Insolvency and Bankruptcy Board of India (Liquidation process) Regulation, 2016; a second amendment was passed by the board. They introduced Regulation 47A to liquidation regulations in 2020. The newly added regulation provides for similar provision as Regulation 40C amended under CIRP Regulations. This regulation also prescribes that the period during which lockdown is imposed in the country shall be excluded while conducting any liquidation process.
5.4 Extension of limitation:
Apex court by its order on 23rd March, 2020 issued notification under which it extended the period of limitation in all courts as well as all tribunal in whole country with effect from 15th March 2020. Which was lifted by another notification on the date of 15th March 2021.
NCLT being an appellate tribunal took Suo moto action to provide relief to stake holders by its power prescribed under Rule 11 of the National Company Law Appellate Tribunal Rules, 2016 issued an order that as lockdown has caused such a situation under which for all cases currently undergoing CIRP process cannot be completed within threshold as provided under section 12 the code i.e., 330 days. Hence as relief, the period of lockdown shall be excluded while calculating the threshold.
Also, any interim relief given or any stay on any stage of the CIRP process shall be in force till the next date or until specifically declared to be cease to be in force by the tribunal.
5.5 Amendment to IP Regulations:
Insolvency professional who are holding registration certificate, under Regulation 7(2) (ca) of Insolvency and Bankruptcy Board of India (Insolvency Professional) Regulations, 2020 are obligated to pay IBBI a professional fee at the rate of 0.25% from whatever fees they might have earned by providing services as Insolvency Professional in preceding financial year. On 20th April, 2020 the proviso to above mentioned regulation was added. This proviso suggested extension of time for payment of such fees by insolvency professionals. So instead of paying them by the end of the financial year i.e., on the 30th April, 2020 such duration was extended up to 30th June, 2020. However, proposed relaxation was only pertaining to COVID-19 pandemic period and only related to year 2020.
6. Judicial Dictum on Corporate Restructuring:
6.1 Essar steel India Ltd. V. Satish Kumar Gupta
Present case deals with very important issue relating to corporate insolvency resolution process under the code. Also, the impugned judgement upheld the constitutionality of the Insolvency and Bankruptcy Code, 2016. Facts of the case were as under;
Essar Steel was undergoing for Corporate Insolvency Resolution Process before the National Company Law Tribunal situated in Ahmedabad in the year 2017. Reason was ArcelorMittal being world’s leading steel and mining company submitted an original resolution plan for acquiring Essar Steel. The plan was accepted by the COC. The plan contained the condition that Operational Creditors would let go of whole amount of debt of an amount above one crore rupees. To which NCLT approved the original plan submitted by ArcelorMittal and in addition to that NCLT also gave direction that the committee of creditors shall be obligated that at the end of the whole CIRP process whatever profit or gain is recovered by them, they shall be sharing at least 15% of the share of such profit or financial gain with operational creditors. This decision of NCLT was challenged before appellate tribunal.
NCLAT on the other hand held that Operational Creditors and Financial Creditors shall not be differentiated under the resolution plan they should be equal under such plan. However, NCLAT did not disapproved the resolution plan. This decision of NCLAT was therefore challenged before Apex court.
The Supreme Court of India overruled both NCLT as well as NCLAT. It held that tribunals shall not interfere with any of the decision having commercial in nature which is decided by majority of the committee of creditors. All the decisions which are relating to payment to creditors is only to be taken by the COC. However, such decision must include 3 important constrains being maximization of value of assets of the company undergoing CIRP, interest of all shareholders must be balanced and corporate debtor is kept going concern during CIRP. The court held that financial creditors and operational creditors are not same and should not be treated equally as well. If it is done so, result would be failure to ensure object of code. In addition to it, Apex court also held that an additional committee can also be appointed during CIRP process so that certain works like negotiating with applicants or any of the administrative works can be handled by that subcommittee. However, court also mandated that sub-committee can only perform such actions as may be assigned by or approved by the COC.
Apex court in present judgement held that it is not mandatory to complete whole CIRP within 330 days from commencement date in exceptional cases the time limit given under the code can be extended. Thus, Supreme court struck down the phrase “mandatorily” from section 4 of 2019 amendment act.
Apex court granted the original resolution plan submitted by ArcelorMittal. Impugned judgment helped nearly 90 banks to recover their debts.
6.2 Rajputana properties Pvt. Ltd. V. Ultratech Cement Ltd.
Apex court of India consisting division bench of justice R F Nariman and Navin Sinha in impugned judgement upheld the judgement given by the appellate tribunal. Supreme court rejected the plea of seeking stay up on Ultratech’s bid for Binani Cement and held valid while held that Dalmia Bharat’s offer as discriminatory and unbalanced.
Petitioner Dalmia Bharat in its resolution plan clearly drew terms which were discriminatory towards those financial creditors who were footing on similar criteria, still were not equally treated. The interest of those stakeholders was not balanced and created in the manner which resembles that of an operational creditor. That is why the resolution plan so presented by the petitioner was held to be contrary to the scheme of the code.
According to code of 2016, only after the approval of the committee, the resolution plan shall be submitted to the Authority for the purpose of Adjudication to the NCLT. After which the Adjudicating Authority is obligated to go through the proposed resolution plan and after being satisfied to the plan that it meets the requirements given under section 30 the Adjudicating authority has power to either accept it or reject it. This section makes it clear that the authority to finally approve a resolution plan stays with the Adjudicating Authority. However, he shall approve any such resolution plan after considering following aspects;
Adjudicating Authority shall see whether the proposed resolution plan complies with those requirements that are mentioned under section 30(2) of the code. He shall also look that the proposed plan is not unfair and it is equitable for all having no means to discriminate. And at last, he shall also pay special attention to identify whether the proposed plan is observes the object of the code.
6.3 Excel Metal Processors Limited V. Benteler Trading International GMBH and Anr.
In the present case it was held by NCLAT that the power to adjudicate matters pending under the code, lies with NCLT. And since NCLT is already assigned with such jurisdiction the parties are not allowed to form opposite terms in to their agreement and thereby give jurisdiction to only court situated outside India curbing the jurisdiction of NCLT. Parties cannot derive the benefit out of terms and conditions of their agreement.
Under this case, appellant referred to their agreement and argued that the agreement contains a clause which states that in the circumstances of any dispute which may arise out of the agreement, jurisdiction shall lie only to the Court of Germany and no application can be instituted in India.
Here, NCLAT referred its pervious judgement having similar nature of findings. It reiterated its own judgment of 2018 famously called as Binani Industries case. Wherein the NCLAT held that resolution process so mentioned under the code is not a suit or case which shall be filed in any of the court. The sole purpose of initiating such resolution process is to bring a solution to company undergoing insolvency and thereby help it not to make any kind of defaults on payment of its dues.
As it is clearly prescribed under Companies Act, 2013 under section 408 that the particular tribunal namely NCLT is established in different states and Government has delegated powers on them to handle the issues situated in that specific vicinity having enumerated headquarters of the company may be located.
Hence in conclusion NCLAT ordered that instead of deriving advantage from the terms of an agreement and thereby giving jurisdiction to Court of Germany, NCLT Mumbai will be having the jurisdiction to try and adjudicate the application because the registered office of an applicant is situated in Mumbai.
The Indian history of regulating insolvency was not so revolutionary till 2016. Every legislation only provided direct liquidation of company after declaring insolvency. However, after enactment of the IBC, 2016 whole position has changed. The prima facie focus of the code was to revive the companies facing financial or economic issues and by entering into process of reconstruction of governance of the company, it can be reorganised in a way which helps it to grow in market. Under the Indian code, whole control of the company gets transferred to RP (Resolution Professional) and he works according to the need of creditors of the company. In all this arrangement, BOD (Board of Direcctors) of the debtor company is highly neglected. BOD are important to the company and if they are part of the process, reorganisation plan can be made quicker. In other words, rather than giving whole control to a person who is new to company and unknown to its affairs, if Board of directors or old management of the company is given place in preparing new resolution plan, things can be resolved quickly.
However, the Indian code is inspired from the UK insolvency act therefore most of the provisions are its reflection modified as per need of Indian infrastructure. In addition to this, the code is quite recent and yet developing in nature still the results of the code are inspiring. With the help of the code, in last four years many companies have revived and are now stable. There is no doubt that the code has turned out to be a boon for Indian companies.
*Author’s email: firstname.lastname@example.org
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